Federalism and Local Politics in Russia

240 Hellmut Wollmann and Elena Gritsenko• Still another avenue of top-down intervention (and potential intimidation)has been included in Article 75 of the 2003 Law, according to which theregional authorities may temporarily intervene by suspending the powerof the local authority and by acting in their stead, in cases where thebudget deficit exceeds the local authority’s own revenues by 30 per cent.The threat to the status of the LSG levels and units, lurking in this provision,lies in a budgetary ‘vicious cycle’. Federal and regional authoritieshave been eager to shift expenditure-intensive responsibilities (infrastructural,social policy, etc. tasks) to the local authorities while failing tolive up to their obligations (formally entrenched in Article 132.2 of theFederal Constitution) that such transfer of tasks should go hand in handwith the transfer of the required ‘material and financial resources’. Thus,the local authorities find themselves in a budgetary trap, which all butforces them to drive up their budgetary deficits. This, however, conjuresup the spectre of a ‘top down’ intervention under Article 75. Moreover,Article 75 provides the context for political manoeuvering and ‘armtwisting’,as federal and regional authorities may employ a financial leverto withhold grants to politically opposed local authorities, wilfully drivingthem further into the budgetary ‘vicious cycle’. Furthermore, an interventionistmeasure under Article 75 may allow regional ‘raid-type’actions against local authorities, with the aim of dividing up municipalproperty, including real estate, following a similar pattern to the hostiletake-over of companies by other enterprises. 647 Local government financesParallel to the territorial, functional and institutional changes predicated inthe 2003 Law, which was intended to make LSG more amenable to centraland hierarchical guidance and control, the entire tax and budgetary systemhas also been revamped to buttress and support the centralist thrust.Without going into details at this point 65 it should suffice to highlight thefollowing points. On the expenditure side of the LSG level it should berecalled that in recent years the federal government has been pouring outlegislation which has led to LSG being overburdened with delegated tasks,particularly in the infrastructural and social policy fields. Hence, the local-levelexpenditures have seen a steep growth.On the revenue side, it is stipulated, it is true, in Article 132.2 of theFederal Constitution, as well as Article 19.5 of the 2003 Law, that thetransfer of tasks should be accompanied with the necessary funds to carryout these tasks. Yet, in recent years the federal government has far fromheeded this constitutional and legal obligation. Insofar as grants wereassigned, they have been given as narrowly ‘ear-marked’ (categorical) grants,often based on a short-term formula which allows the upper governmentlevels flexibility and also political discretion, whilst depriving local governmentof the possibility to plan its expenditure on a long-term scale.