Civil Network OPORA has prepared the second research on the distribution of state subventions for social and economic development between single-member district in Ukraine. Similarly to the previous year, the data analysis for 2017 shows there are political factors influencing the administration of state subventions. We may see from the way the government financial assistance for regional development is used, how wide are the opportunities, opened for influential majoritarian MPs in receiving considerable financing for the solution of problems in their constituencies. Political motivation in the distribution of state funds reveals the problem of shadow lobbying, conflict of interests and corruption. However, OPORA's researches do emphasize that the effectiveness of subventions is another serious challenge.

More and more often, politicians use state subventions in communication with territorial communities, when many voters are engaged through multiple projects, which do not require big financing. It is impossible to get a long-term result by dispersing state subventions between projects, which priority may be put in question. For example, the average size of a state subvention for social and economic development has increased in 36% in 2017, and the list of financed projects contains striking examples of unsystematic, or even trivial expenses. The number of projects, which received state financing in amount of 50 thousand UAH and less, has increased from 13% in 2016 to 26% in 2017. The absence of substantiated priorities is hardly within the principles or sustainable regional development, but is perfectly logical in terms of voter engagement.

The topicality of OPORA's research on the distribution of state subventions is especially urgent while 2019 national election is approaching. It is especially important for any country with unstable democracy like Ukraine to prevent the misuse of administrative resources on an election. A key to successful counteraction to such electoral violations lies in a combination of efficient application of the law and adherence to generally recognized standards of competitive elections by politicians. Unfortunately, Ukrainian politicians often used national resources for the benefit of the certain political parties and candidates.

Campaign manipulations with budget programs and public procurement became a traditional instrument used by unfair officials and candidates. A bright example of the misuse of administrative resources during elections in Ukraine was when the Party of Regions attempted to gain campaign bonuses through the deployment of thousands of new social workers in 2012 parliamentary elections. Taking into consideration the resonance of 2019 presidential and parliamentary elections, it's important to prevent a repetition of such odious experience and organize a competitive election, guaranteeing equal rights and opportunities for each candidate.

Misuse of budget administrative resource, i.e. using budget funds for the benefit of the certain parties and candidates, is one of the most dangerous violations of election standards. Although misuse of such administrative resource is often within the formal regulations, it is disastrous for competitiveness of the election. Politicians manipulate by voters and communities desiring to get enough financing for local projects, and avoid the responsibility for de facto campaigning, financed from the state budget. We should also mention a negative practice of using infrastructure projects in the media and for campaign purposes by current MPs of Ukraine and state officials.

Civil Network OPORA calls on the Cabinet of Ministers of Ukraine, the Verkhovna Rada of Ukraine, the President of Ukraine and other stakeholders to make enough effort against the misuse of budget administrative resource in an election process. First, it is important to increase the transparency of procedures and make a list of objects, subject to state subventions. Besides that, we need to ensure the financing is divided equally among the territories, and the allocation is free from political bias.

Subvention – is a targeted financial assistance to local authorities, allocated by the government. Such financial assistance is included in the State Budget of Ukraine, but its amount and the list of state subventions may change each year. The budget usually includes the following subventions:

• medical;
• educational;
• infrastructure of UTCs;
• repayment of the difference between the actual value of communal services provided to the population;
• realization of events, aimed at the development of health care sector in rural areas;
• social and economic development of territories.

Besides that, there is a State Regional Development Fund, which also provides regional financing.

In our research, particularly because of unclear mechanisms and principles of budget resource allocation, we have been analyzing for the second time a subvention titled “on social and economic development of territories”. Besides that, Members of Parliament, who submit so-called “propositions” the way local administrations do, are directly involved in the distribution of funds and creation the of list of objects (measures), subject to a subvention. Such right is provided in the Resolution #106 of the Cabinet of Ministers “On the Procedure and Conditions of Receiving State Budget Subventions by Local Budgets for Social and Economic Development of Territories”. The resolution was adopted while Azarov's Government was in power, but is still effective with some amendments to it.

In particular, the Resolution establishes that the Ministry of Finance bears major responsibility for subvention administration, specifies which objects and measures for subvention financing and conditions of its allocation. However, the document is silent about a mechanism for allocation and distribution of funds.

Besides that, the document did not include until recently the mechanisms for participation of MPs in the distribution of subventions, except for coordination with the VRU Budget Committee. However, it does not mean the MPs didn't really participate in the process. Only on 27 September 2017, the corresponding amendments to the abovementioned Resolution had been adopted and “propositions of MPs” were finally “legalized” Besides that, a special commission was formed under the Ministry of Finance in 2017 for the preparation of propositions on distribution of subventions, which membership, by the way, includes at least 50% of the VRU Budget Committee representatives.

As you can see, the distribution of subventions had officially became politicized but, unfortunately, its transparency didn't increase.

What numbers are we talking about?

In 2016, according to the Resolution of the Cabinet of Ministers #395, 2 billion 453 million UAH was allocated for 3,714 objects (measures). However, the amount had increased in 2017 in over two times reaching 5 billion 252 million UAH, and the number of objects increased in almost three and a half times. According to our calculations, there were six resolutions of the Cabinet of Ministers of Ukraine (#70, #310, #463, #484, #689, and #861) concerning allocation of subventions on social and economic regional development from the state budget in 2017. As for the current year, a similar amount was reserved in the budget for this type of government assistance.

We do not know for sure, why the amount of subvention has increased so drastically over the last two year, but more than 50 MPs had mentioned “the positive influence of this budget program” in their appeals to the Cabinet of Ministers. They had also suggested that Volodymyr Hroisman would “order to increase state subventions in draft Law on State Budget for 2017”. Everything was done as said.

Regional priorities of the government

OPORA has calculated which regions received the biggest and the smallest subvention financing for social and economic development in 2016 - 2017. It turned out that leading oblasts, as well as the outsiders, have been almost the same for two years.

In 2017, Vinnytsia oblast received 371 million UAH, comprising 7.1% of the total amount of subventions. Kharkiv (343 million UAH, or 6.5%) and Ivano-Frankivsk (337 million UAH, or 6.4%) oblasts are next in the rating. Odesa and Lviv oblasts received a little smaller financing – 293 million UAH (5.6%) and 285 million UAH (5.4%) respectively.

Compared to the previous research, top four cities have not changed: Vinnytsia, Ivano-Frankivsk, Odesa and Kharkiv oblasts. However, Vinnytsia oblast went up from the fourth place to the first, and Kharkiv oblast took the second place. Kyiv oblast, for its part, was substituted in the group of leaders by Lviv oblast.

Although the situation with oblasts at bottom of the rating is similar, five regions, which received the smallest financing compared to the last year, haven't changed: city of Kyiv, Kherson, Ternopil, Zakarpattia, and Luhansk oblasts. It should be mentioned that Luhansk oblast is the last for the second year in a row, with financing amounting 17 million UAH in 2016 and 51 million UAH in 2017.

Thus, the funds have been distributed unequally between oblasts for the second year in a row. Thus, two adjacent oblasts having similar size and population number, particularly Ivano-Frankivsk and Ternopil oblast, receive diametrically opposed amounts of financing. In 2016, the difference reached 5.5 times, and in 2017 – a little more than in 3 times.

The amount of subvention financing does not depend on a size and, for example, the number of electoral districts in an oblast. Thus, the number of electoral districts doesn't influence the number of financed objects (measures).

In 2017, the following oblasts received the biggest number of subventions: Cherkasy oblast – 966 measures in 7 districts; Lviv oblast – 944 measures in 12 districts; Zhytomyr oblast – 911 measures in 6 districts; Vinnytsia oblast – 813 measures in 8 districts; and Odesa oblast – 772 measures in 11 districts. To compare, there are 9 districts in Zaporizhia oblast, but the number of financed objects (measures) was only 155. Although the amounts of financing, allocated to Zaporizhia and Zhytomyr oblasts are almost equal, there is almost 6 times difference in the number of subventions.

Compared to the research of subventions in 2016, the rating of regions with the biggest and the smallest amount of subvention financing hasn't changed. For example, Cherkasy, Zhytomyr and Vinnyitsia oblasts had a big amount of subvention financing two years in a row, while Kirovohrad and Zakarpattia oblasts didn't have so many subventions. One regions use subventions for big costly projects, while the others use financing for unsystematic or even trivial expenses. The number of projects, which received state financing in amount of 50 thousand UAH and less, has increased from 13% in 2016 to 26% in 2017. Thus, absence of substantiated priorities is hardly within the principles or sustainable regional development, but is perfectly logical in terms of voter engagement by current majoritarian MPs, who participate in the distribution of state subventions for social and economic development.

A land of playgrounds

Although the Resolution #106 of the Cabinet of Ministers “On the Procedure and Conditions of Receiving State Budget Subventions” establishes specific targets for financing, we may see from a detailed analysis of subsidies that budget funds are spent on extremely wide variety of objects (measures). For example, expenses within one region or district may be allocated for big infrastructural objects, major repairs of hospitals, roads or schools, and for absolutely "trivial" purchases like toys, computers, bicycles, or construction of playgrounds. While in the first case the allocation of funds seems to be logical, it is quite questionable in the second one.

It's impossible to tell now why the Cabinet of Ministers doesn't execute its own resolutions and orders, which determine the directions for subventions. Civil Network OPORA has analyzed the allocation of funds per categories of objects, and revealed that the funds are not always allocated for the sectors, determined by the abovementioned Resolution #106 of the Cabinet of Ministers.

Thus, the biggest number and amount of subventions was allocated on educational establishments. In 2016, 1,782 objects received the financing in amount of 987 million UAH. In 2017, this sector received 6,254 subventions amounting almost 1 billion 952 million UAH.

Educational reform certainly must be among top priorities for Ukraine. However, there are hundreds and thousands of trivial expenses among financed objects (matters) besides constructions, major repairs, reconstructions of educational institutions, and other important infrastructural project. For example, over 700 subventions in 2017 were allocated for the procurement of multimedia equipment and other devices; 500 – for the purchase of furniture; and over 400 for sports inventory and toys in schools. Thus, only 14% (269 million UAH) of all financing allocated for this type of subventions, were spent on expenses comprising one third of all subventions for educational establishments.

Such purchases are hardly within the principles or sustainable regional development, but perfectly logical in terms of voter engagement by current majoritarian MPs. The MPs often use such state subventions in media anf campaigning purposes. For example, there is information on website of Khmelnytsk Raion State Administration about “representative of MP Petro Yurchyshyn (Petro Poroshenko Bloc, Vinnytsia oblast), Vasyl Pavlenko, who presented 15 thousand UAH certificates on the procurement of furniture, computers etc. to directors of 20 preschool establishments, in accordance with the Resolution of CMU on allocation of budget subventions”.

Besides that, MP Roman Matsola (Khmelnytsk oblast) from the same party has informed on his official website that he “presented 22 pieces of new equipment to schools in his community together with administration of the UTC: notebooks computers, projectors, monitors and printers.” It is mentioned on website of the MP that the equipment was purchased on the initiative of Roman Matsola (financed from subvention for the regional social and economic development). Moreover, it was even mentioned in one of the videos that it was “Education assistance program of the Government of Ukraine and MP Roman Matsola.”

The expenses on medical institutions were twice smaller in 2017 – 1 billion 187 million UAH. The amount has increased in 4 times compared to 2016. As for the health care sector, big infrastructural projects were financed for the most part, and the biggest amount was allocated for the construction of surgical department at Vinnitsa Regional Clinical Hospital Named After N.I. Pyrogov — 145 million UAH.

Culture palaces, libraries, museums and other cultural institutions were less “lucky” – they received 169 million UAH in 2016 and 341 million UAH in 2017. The MPs also actively informed that, for example, the equipment for culture palace was purchased on their initiative. In particular, such information was placed on the official website of MP from the People's Front Ihor Hruz (Volyn oblast). The MP informed about an “inspection of the use of funds, provided for the procurement of 3 loudspeakers, a notebook, disco lights and microphone.”

Housing services, welfare and infrastructure development also received state subventions, similarly to 2016. Thus, 1664 subventions were allocated for this sector, amounting 974 million UAH in 2017. Almost everything had been repaired. In addition, the MPs actively reported this to the voters. For example, MP from Odesa oblast Hennadii Chekata (Petro Poroshenko Bloc) tells in his interview to a local TV UTV about the start of a new program: “A new initiative was launched in Malynivskyi district. We will replace windows in main entrances of multi-apartment buildings.”

Funds from state subventions have been actively spent also on road repairs. In 2016, the financing on road repairs was around 359 million UAH, in 2017 – over 621 million UAH. Repairs in Kolomyia and Yman were the most wide-scale. Thus, MP from Cherkasy oblast Anton Yatsenko (“Vidrodzhennia” Party group of MPs) had stated: “I am glad that I had a chance to cooperate also with the Government, and that we received the funds. The cities, which delegated me as an MP will have no regrets, I believe.”

From over 5 billion UAH of state subventions, “as little as” 178 million UAH was spent on the construction of playgrounds and sports grounds in 2017. The amount is three times bigger compared to 2016. Children in 123 electoral district (Lviv oblast) received the biggest number of such “presents”. For example, 119 playgrounds costing 6.6 million UAH were constructed in the district of non-faction MP Taras Batenko. The MP stated on one of the openings: “Enter any street in Novyi Rozdil, and you will see a playground. We want to do this also in a neighboring city of Zolochiv. Each settlement of our district should have a place where kids may spend some good time.”

As you can see, state subventions were often allocated for projects, embracing very different problems. This fact, we believe, is one of the major challenges for the system of subventions for social and economic regional development. It means there is no transparent mechanism for assessment of the suggested projects, and their approval is probably reached through “negotiations and agreements”. It means that influential majoritarian MPs will always have big opportunities for campaigning at the cost of budget funds.

State subventions and factions

Electoral manipulations with misuse of subventions for social and economic regional development even long before the start of 2019 national elections may hazard the availability of equal opportunities for each candidate during the election period. Taking into consideration this fact, Civil Network OPORA continues analyzing whether the subsidies are evenly distributed among the districts, represented in the Parliament by MPs from parliamentary factions and groups of MPs.

The largest amounts of subventions, both in financial and quantitative equivalents, received 72 districts of majoritarian MPs representing the Petro Poroshenko Bloc. In 2016, they received 1,837 subventions amounting 1 billion 62 million UAH”. In 2017 — 5,718 subventions amounting 1 billion 967 million UAH. Members of the People's Front faction and of the “Vidrodzhennia” Party group of MPs received in 2.5 times less financing in 2017 – 798 million UAH and 750 million UAH respectively. 18 majoritarian MPs from the People's Front received 1,703 subventions; and 24 districts represented by the “Vidrodzhennia” group received subventions for 1,539 objects (measures).

43 non-faction MPs, for their part, received 628 million UAH as subventions, while 19 districts represented by the Volia Narodu group received a little less financing, amounting 503 million UAH.

At the same time, taking into consideration a large number of majoritarian MPs representing the Opposition Bloc (16), they received little subventions. The number of objects has increased a little compared to the previous year from 44 to 56, and the amount of allocated funds for districts represented by this faction increased in over two times from 46 million UAH to 124 million UAH.

4 majoritarian districts represented by the AUU Batkivshchyna faction received 45 million UAH in 2017, and 2 represented by the Samopomich — 18 million UAH.

OPORA has analyzed an average amount and number of subventions given for each district, divided into factions and groups. Thus, the following parties took the leading positions both in 2016 and 2017: Peoples Front, Petro Poroshenko Bloc, and groups of MPs Volia Narodu and “Vidrodzhennia” Party.

Thus, the average amount of subventions in 2017 per district represented by MPs from the People's Front was 44 million UAH, by MPs from the “Vidrodzhennia” Party group – 31 million UAH, by MPs from the Petro Poroshenko Bloc – 31 million UAH, by MPs from the Volia Narodu group – 26 million UAH. At the same time, the average amount per district represented by non-faction MPs was 15 million, by a member of Samopomich – 9 million, representative of the Opposition Bloc – only 8 million.

Thus, we may see from the statistical data on the distribution of funds among the districts that there are the certain preferences in receiving the funds by majoritarians, affiliated in the Petro Poroshenko Bloc, People's Front, Volia Narodu group and “Vidrodzhennia” Party, which do not formally belong to the Parliamentary majority, but often vote the same as the coalition.

“Strategically important” districts

Taking into consideration that the MPs directly participate in the allocation of state subventions, and unequal distribution of funds among different regions of Ukraine, we have analyzed how the funds are divided between majoritarian districts. Here are the results: over 40% of districts received too little funding from state subventions in 2016. 38 districts, for their part, received less than 10 million UAH, and 43 districts didn't receive any funding at all. The situation in 2017 was almost the same despite the amount of subventions had increased in almost two times. However, only 25% of districts received too little funding. In particular, 24 districts were forgotten by the Government, and another 26 received less than 10 million UAH.

Such situation, we believe, shows not only that the subventions are distributed unequally, but also that the whole process lacks unbiasedness.

If we compare 2016 and 2017, we will see that only a half of the list of MPs and election districts, which received the largest amounts of subventions, has renewed. There are four MPs in top 2017, who were also in top in 2016. We are talking about Kostiantyn Yarynich from the Petro Poroshenko Bloc, Valerii Pysarenko from the “Vidrodzhennia” Party, Yurii Tymoshenko from the People's Front, and non-faction MP Oleksandr Shevchenko.

Electoral district #168 (Dzerzhynskyi district, Kharkiv city), represented by Valerii Pysarenko, receives the biggest subvention financing on social and economic development for the second year in a row. Thus, it received 68 million UAH in 2016 and 87 million UAH in 2017. Electoral district #99 (city of Kropyvnytskyi) received the same financing in amount of 87 million UAH in 2017, which is represented by Kostiantyn Yarynich from the Petro Poroshenko Bloc.

The following districts received the largest amounts of subventions in 2017: #22 (Lutsk city), represented by Ihor Lapin from the People's Front, and #83 (a part of Ivano-Frankivsk city), represented by a non-faction MP Oleksandr Shevchenko – 85 million UAH each; district #153 (Rivne oblast), represented by Yurii Vozniuk from the People's Front – 82 million UAH; district #204 (Chernivtsi oblast), represented by the leader of People's Front Maksym Burbak – 79 million UAH; district #91 (Kyiv oblast), represented by Ruslan Solvar from the Petro Poroshenko Bloc – 71 million UAH; and district #88 (Ivano-Frankivsk oblast), represented by Yurii Tymoshenko from the People's Front.

You reap what you sow

As we have already mentioned, oblasts have different approaches to the distribution of subventions. The situation in districts is similar. In some districts the funds are allocated for big infrastructural objects like constructions or major repairs of hospitals, roads and schools, and in other the money is scattered among not really infrastructural purchases like vegetable slicers, tennis tables, lawn mowers, training sets, LEGO, bicycles, toys etc. Taking into consideration that the influence of MPs on the allocation of subvention financing is quite significant, we can assume that in some districts the MPs choose to focus on big objects, and in other districts they try to be involved in as many small projects as possible to get the maximum outreach. As a result, they engage broader circles of the voters. Such practices in the election period may bring extremely negative results and have all the characteristics of the misuse of administrative resources.

Taking into consideration the significant disproportion in the distribution of subventions among oblasts, we analyzed the number of subventions received by election districts.

Thus, majoritarian district #123 (Lviv oblast), represented by non-faction MP Taras Batenko, received the biggest amount of subventions in 2017. District #65 (Zhytomyr oblast), represented by another non-faction MP Volodymyr Lytvyn, received 400 subventions.

389 objects (measures) were financed in district #198 (Cherkasy oblast), represented by MP Serhii Rudyk from the Petro Poroshenko Bloc; in district #13 (Vinnytsia oblast), represented by MP Petro Yurchyshyn from the Petro Poroshenko Bloc, – 383; in district #161 (Sumy oblast), represented by MP Mykola Lavryk from Petro Poroshenko Bloc, – 373.

The following MPs are also in top of MPs, which electoral districts received the biggest number of subventions: Volodymyr Zubyk (district #195) – 322 subventions, Oleksandr Koloda (district #209) – 309 subventions, and Oleksandr Dekhtiarchuk (district #154) – 233 subventions.

Blank spots and black sheep

As we have already mentioned, another tendency in our research is the list of those who didn't receive any subventions at all. While there were 43 such majoritarian MPs in 2016, their number decreased to 24 in 2017.

18 majoritarian MPs haven't received any subventions on social and economic development for the second year in a row. These MPs are: Oleksandr Marchenko (#90), Andrii Illienko (#215), Andrii Denysenko (#26), Volodymyr Parasiuk (#122), Ivan Baloha (#73), Dmytro Yarosh (#39), Serhii Kliuiev (#46), Yurii Levchenko (#223), Viktor Chumak (#214), Yevhen Bakulin (#106), Andrii Halchenko (#32), Serhii Dunaiev (#107), Artur Martovytskyi (#36), Yulii Ioffe (#112), Oleh Nedava (#53), Ivan Kulichenko (#28), Volodymyr Mysyk (#172) and Oleksandr Ponomarov (#78).

The majority of districts, which do not receive subventions are located in Dnipropetrovsk oblast (5), Kyiv city and Luhansk oblast – 3 districts each. Two districts in Donetsk oblast do not receive state subventions; in Lviv, Zaporizhia, Zakarpattia, Kyiv and Kharkiv oblasts – one district each.

Finis coronat opus

Unfortunately, “extortion” of money for districts have been existing for years. We have to understand the fact that nobody wants “to saw off a branch he is sitting on”. It's difficult to change a system, which grew stiff over the years, but possible.

Having analyzed the allocation of subventions in 2016 and 2017, OPORA has made the following conclusions:

1. The allocation of subventions on social and economic regional development is very “politicized”.
2. Approval mechanisms and procedures for the selection of objects (measures) subject to subvention, is nontransparent and unclear. There are no public consultations concerning top priority sectors for social and economic development.
3. The amount of financing, allocated for different regions of Ukraine, is absolutely unequal.
4. The financing is scattered among projects, which priority may be put in question, what makes it impossible to reach any long-term results, and the list of financed projects contains striking examples of unsystematic, or even trivial expenses.
5. Most of majoritarian MPs use infrastructural objects, financed from the state budget, in media or campaign purposes.

Taking into consideration the research findings, Civil Network OPORA recommends the Cabinet of Ministers of Ukraine and the Verkhovna Rada of Ukraine to improve the existing mechanisms for allocation of subventions on social and economic development, particularly:

1. To make the whole process more simple and easy to understand.
2. To guarantee a transparent compilation of the list of objects, which are expected to be financed from the state budget.
3. To introduce public consultations, aimed to determine which objects (measures) are going to be financed first.
4. To create the conditions for equal distribution of funds among, first of all, different regions of Ukraine, and among the electoral districts, which are also represented by MPs from different political parties and groups.

Reference: This research is based on the analysis of the Appendix #3 to the Resolution #106 of the Cabinet of Ministers “On the Procedure and Conditions of Receiving State Budget Subventions by Local Budgets for Social and Economic Development of Territories” for 2016-2017. For 2016, it's the Resolution #395 of 24 June 2016; and for 2017 – there were six orders (#70, #310, #463, #484, #689, and #861).

We used a geographic principle to bind objects and electoral districts. In 2016, we didn't manage to determine the location of 3 objects within the certain district; in 2017 – of 62 objects.

To analyze the distribution of subventions among MPs in 2017, we didn't take into consideration the Cabinet of Ministers' Resolution #70 and a 100 million subvention on the construction of surgical department at Vinnitsa Regional Clinical Hospital Named After N.I. Pyrogov.

 

P.S. The data on distribution of funds per electoral districts and among objects are not published by the Cabinet of Ministers of Ukraine. Thus, we applied machine collection method. This could influence data completeness and accuracy.

The research on distribution of state subventions in 2016: https://www.oporaua.org/en/news/45101-public-subvention-who-and-how-much-solicited-for-the-constituency

Data set:https://github.com/OPORA/rada/tree/master/subventions