Ukraine has been one of the last of the former Soviet bloc countries to undertake a real decentralization process, even though it has been discussed over the past 20 years. However, it has begun this process from 2015 with an emphasis on territorial amalgamation of the 11,000 local government units. Ukraine has defied two of the main rules of fiscal decentralization and this has contributed to its highly successful effort. Ukraine's decentralization has been based on voluntary amalgamation as opposed to mandatory merging that has been typical in the other CEE and EU countries. Second, it has focused on increasing the financies, prior to devolving functions. It has applied the new rules "functions evolve from finance" and not "finance follows function" that never worked practice. Ukraine applied 9 of the 12 New Rules for Implementation of Fiscal Decentralization and only followed 3 of the old Roy Bahl formulated rules.
What is demonstrated is that a bottom-up voluntary approach coupled with appropriate financial incentives and enhancements is key to succeeding in fiscal decentralization.
Here is summary of the results up to April 2019 of what Ukraine has achieved:
Administrative-Territorial Reform in Ukraine
The need for new local government structures and consolidation of the large number of local government units has been on the political agenda in Ukraine since its independence in 1991. This reform was finally begun in 2015 with a new approach to voluntary amalgamation of the small rural area units into fewer units.
Ukraine is a very large country in both population and area. It ranks as 32nd most populous country in the world and with an area of 233,062 sq. mi and population density of 80 per sq. km; it is the largest country in Europe. It is divided into 24 provinces, 490 districts and nearly 12,000 small city and rural councils. The average population for these small units is approximately 1,500.
From 2015, these small local units have been able to merge or amalgamate into larger units on a voluntary basis. This process is unique in that it is a bottom-up amalgamation process initiated by the local towns and villages, rather than top-down mandatory approach. It could be initiated by the mayor, 1/3 of the local council or by the citizens themselves under certain circumstances.
This amalgamation was incentivized by the central government through increasing the share of the personal income tax allocated to the local governments, greater transfers for social sector functions, and with access to investment grants from the State Regional Development Fund. There was also introduced a more transparent and objective based grant transfer formula to the local government units.
At the end of March 2019, there were 886 amalgamated territorial communities (ATC) with a population of 9 million, approximately 30% of the population of Ukraine, and approximately 40% of the land area.
One of the key features of this process has been the use of intermunicipal cooperation agreements among these units to provide more service delivery in certain service sectors, such as in areas of local social service access for pensioners and the opening of administrative service centers to obtain passports and register children for schools. Previously, citizens would have to go to a larger local government unit or several places in order to access these services that required inconvenient travel arrangements and long waits once they arrived at the proper office.
Through March 2019, 1355 communities had 360 cooperation agreements. These communities collect and utilize garbage, provide social and administrative services, finance education and medicine, and develop culture and tourism activities.
The capacity of the amalgamated territorial communities has also been increased with additional staffing of experts in areas of education, medicine, economics, physical education, social workers and other staff in addition to the traditional managers in these units.
There is still a need for further clarification of the legal status of these amalgamated territorial units and their role in the overall governmental structures as well as status within the State Budget.
The first elections for 78 of these amalgamated units will be held by the end of 2019 following the approval of the Central Election Commission for the holding of these elections for local officials. Other amalgamated units are waiting for the approval to hold elections in the coming year.
The amalgamation process is to continue into 2020 with a target of at least 1400 new amalgamated territorial communities.
Significantly, in November 2016, there was created an Association of Amalgamated Territorial Communities to represent the needs and interests of these merged communities to the central government in areas of policy and legislation affecting these communities.
Public opinion surveys indicate that the amalgamation has had a positive impact on the citizens views of their local governments and the services that they are receiving under the new arrangements.
The combination of voluntary bottom-up initiative and coupled with provision for intermunicipal cooperation and appropriate financial incentives seems to be the key factors in the success of the amalgamation process in Ukraine.
