Presentation On General Principles of Developing Intergovernmental Fiscal Relations in Tver Oblast as of 2005

The System of Funds for Financial Support The Fund for Financial Support, Objective: equalization of fiscal capacity of municipalities Municipal Development Fund, Objective: shared financing of municipal programs and investment projects that are crucial for development of the region. Social Expenditures Co-Financing Fund, Objective: subsidies to the most important and high-priority expenditures in local budgets. The Fund for Local Finance Stabilization, Objective: partial compensation of losses to municipal budgets sustained due to the migration to a new system of intergovernmental fiscal relations. The Fund for Municipal Finance Reform, Objective: competitive allocation of subsidies to municipalities that implement their reform agendas Compensatory Fund, Objective: to finance subventions to implement federal and regional laws that relate to social sector.

Composition of Funds for Financial Support

Expenditure Co- Financing Fund Co-Financing Objectives Conditions of obtaining funds Unified allocation technique Allocation to municipalities (approaches) Appendix to the law “On the Regional Budget” Financing based on the subsidy extension procedure

Social Expenditures Co-Financing Fund The Social Expenditures Co-Financing Fund covers expenditures that: 1. Belong to local jurisdiction; 2. Presuppose a “blanket” allocation of resources among all (or almost all) municipalities. In order to allocate the resources from the Social Expenditures Co- Financing Fund, it is necessary to establish : 1. Specific expenditure areas where SECF allocations will go; 2. The size of SECF assistance allocated to each of the areas; 3. Conditions for municipalities to be eligible for SECF resources to each of the expenditure areas; 4. A technique to allocate SECF assistance to each of the areas, including the group of assumed beneficiaries ; adjustment factor for the cost of service provision ; co-financing needs (fiscal capacity) indicator.

Subsidies to cover expenditures needed to operate social and cultural sector facilities; Subsidies to cover expenditures in the “Education” area: to deliver fire safety measures at educational facilities; to perform major rehabilitation of educational facilities; Subsidies to cover expenditures in the “Health Care” area: to provide special dairy products to children (1-2 years old) free of charge; Subsidies to cover expenditures in the “Culture” area: to perform major rehabilitation of culture facilities; to deliver cinema shows to children and rural population; Subsidies to cover expenditures needed to support district and city-level mass media; Subsidies to support expenditures in the “Housing and Utilities Services” area: to subsidize services provided by heat suppliers; Subsidies to cover road maintenance expenditures of municipalities; Subsidies to cover expenditures needed to support detoxication centers; Subsidies to cover maintenance and repairs of military cemeteries. Social Expenditures Co-Financing Fund

Municipal Development Fund Projects and programs selection criteria Requirements to applications Priorities as spelled in regulations Bidding process Winners: projects and programs A separate line in the law “On Oblast Budget” Financing based on the subvention extension procedure

MUNICIPAL DEVELOPMENT FUND The Municipal Development Fund covers expenditures that : 1. Belong to local jurisdiction; 2. Call for capital provision to finance public infrastructure projects in municipalities; 3. Call for “pinpoint” allocation of resources among the most efficient projects and programs. In order to allocate the resources from the Municipal Development Fund, it is necessary to establish : 1. Clear expenditure areas in which MDF grants will be allocated (sectoral structure of the MDF); 2. The size of MDF grants allocated to each of the specific areas; 3. Criteria used to allocate MDF resources to each of the areas in addition to those spelled out in the draft law on the Fund; 4. A methodology to identify winners of the bidding process for each of the areas (point-based of r any other approach).

The System Used to Finance the Government Standard of General Education (2005) Out of Oblast Budget Standards per 1 student Targeted funds Wages and salariesSupport to teaching process (stationary, paper, first aid kit, travel, fuel, teaching aids, technical aids) Equipment and toys Reimbursement to teachers for purchasing books (100 RUR per month per teacher) Secondary schools Urban – 5,070 RUR Rural - 11,860 RUR Secondary schools – internats Urban - 13,550 RUR Rural - 15,280 RUR Special (correction) schools - internats Urban – 25,067 RUR Rural – 28,268 RUR Secondary schools Urban – 230 RUR Rural – 540 RUR Secondary schools – internats Urban RUR Rural - 1,080 RUR Special (correction) schools - internats Urban - 1,776 RUR Rural - 1,998 RUR Internats at schools – 491 RUR Schools – internats– 8,272 RUR

CALCULATION OF SUBVENTIONS FROM THE COMPENSATORY FUND TO SUPPORT GUARANTEED RIGHTS TO FREE ELEMENTARY, BASIC, SECONDARY (COMPLETE) GENERAL EDUCATION IN 2005 (approved by Law of Tver Oblast “On Oblast Budget of Tver Oblast for 2005”) 1. Determination of standards per student Basic curriculum Standard provisions on general education secondary schools Standard norms for educational facilities developed by the Department of Education of Tver oblast Unified pay scale In-kind equipment provision norms Average price (Tver Oblast Committee on Statistics) Ratio between expenditures to support teaching process (visual aids, equipment, stationary, inputs, etc.) and salaries and wages :schools- 4.5%, schools-internats - 7%. 2. Adjustment factors for wages due to education service cost increase gymnasiums – 1.15; general education correction schools: urban – 2.29, rural – 1.54; Small rural schools with less than 10 students ; Evening school: urban – 0.82, rural – 0.67, At penitentiary facilities under the Ministry of Justice of the Russian Federation

3. Identifying an assumed number of students to be used for subventions calculations Formula: У = Ф х (Нн / Нф), where У – assumed number of students, Ф – actual number of students (trainees) at the educational facility of this type. Adopted in line with the Recruiting Plan submitted by the Department of Education of Tver oblast. Нн – norm-based class size: urban general education schools - 25, rural general education schools - 12, general education internats - 20; correction schools-internats - 12; Нф – average actual class size (obtained by dividing the total number of students by the total number of classes, by educational facility type). 4. Identifying the total size of subvention С = (  (Зi х Уi) +  (Р х Уi)) К +  ( Мi х Фi) + П, where С – size of subvention to ensure state standard for general education, З - wage norm for educational facility of this type; М – norm for equipment and uniform for educational facility of this type, Р – cost standard for teaching process support for educational facility of this type Ф –actual number of students (trainees) at the educational facility of this type, У – assumed number of students (trainees) at the educational facility of this type, ; П– reimbursement for purchasing books and magazines. 5. Adjustment for each municipality within weighted average (by the number of students) of permissible deviations. Maximum allowable growth % Maximal allowable reduction - -10% - of wage costs calculated on the basis of per student norms compared to expenditures approved in oblast budget for 2004, adjusted for 2005 conditions.