Looking at why Kyiv’s budget increased so much and what authorities will be spending the billions on, it turned out the money has an ability to vanish.
sed during the snap mayoral election campaign in 2008. For future prosperity, his team did what was most important – drafted and approved an unprecedented budget for a city in Ukraine – 24.9 billion hryvnia. In Chernovetskiy’s own words, the fivefold increase in the capital’s financial plan as compared to 2005 is his biggest achievement. The city’s mayor promised to spend giant sums on road improvement, infrastructure renewal, and unheard-of salary increases for government workers.
Chernovetskiy’s opponents are quick to point out that the mayor’s financial bravado is based on unreal math and financial successes he takes undeserved credit for. Many of them doubt the current mayor can transform Kyiv into a garden city.
The city treasury’s actual expenses during the last two years of Chernovetskiy’s work make it clear that he worries more about social pay-offs to the electorate than about the development of the capital, his critics alleged. And neither the opposition nor auditing authorities can gain access to the details of actual budget expenses.
It’s almost impossible to track Kyiv’s budget expenses because of the enormous number of election programs and obscure budget statements, said Dmytro Andriyevskiy, a Kyiv City Council deputy and the head of Vitali Klitschko’s election campaign. “It won’t surprise me if it turns out after the elections that Chernovetskiy had already spent the budget funds planned for the next several months,” he said.
The sums used by Chernovetskiy’s team are more than considerable. Kyiv’s budget exceeds all of Ukraine’s oblast centers combined (about 22 billion hryvnia). The capital’s treasury is rich even on a European level. It exceeds Georgia’s annual budget by one-and-a-half times.
Korrespondent decided to examine the situation with the city budget. Examining why Kyiv’s budget increased so much, and what the Kyiv authorities will be spending the billions on, it turned out that the capital’s money has a peculiar ability to vanish.
No fivefold increase
In his spacious office overlooking Khreschatyk, Kyiv City Administraton First Assistant Chair Anatoliy Holubchenko discussed the main elements of success in the government’s work with the city budget. First, how much money the authorities managed to earn; second, how they managed to use it; and third, how they organized and realized their goals and objectives. The experienced manager said Chernovetskiy’s team was successful in all areas. The figures speak for themselves. Budget revenue and expenses for the building of infrastructure were about 17.2 billion hryvnia and 7.6 billion hryvnia, respectively.
ExMayor Oleksandr Omelchenko doesn’t see the obvious connection between Chernovetskiy’s efforts and the budget’s growth. He knows firsthand that 80 percent of the budget comes from taxes on individuals and companies. And as incomes in the capital grow faster than in Ukraine as a whole, it’s obvious the city treasury grows too. The second source of revenue comes from land rents, the value of which grows regardless of who is in power. The third source is the municipal media’s advertising business. Omelchenko does not draw comforting conclusions.
“Chernovetskiy credits himself with the budget’s growth, which in reality occurred thanks to Kyivans, instead of talking about problems with how it’s allocated,” the exmayor said.
And experts’ pragmatic calculations demonstrate that the budget’s income growth is exaggerated with the help of some simple mathematical manipulation. Oleksandr Serhiyenko, director of the City Institute, said there is no fivefold growth. Chernovetskiy simply forgot to include, in evaluating his predecessor’s capital budget, the budgets of separate city districts. Nor did he take into account the inflation rate. Taking this into consideration, the growth will only be about double.
But for the last two years under the Chernovetskiy government, the correlation between the capital’s revenues and state budget is almost the same. In 2005, it was 11.4 percent and in 2008, 11.6 percent.
But Holubchenko doesn’t wish to lose the rhetorical battle and arms himself with statistics, replying that from 2002 to 2004, Omelchenko’s team sold land at a sum of 473 million hryvnia, while the new administration earned 1.01 billion hryvnia with the help of land auctions in 2007.
But such a figure is laughable to the head of the Main ControlAudit Administration Mykola Sivulskiy. During 2006 and the first six months of 2007, only eight land plots were sold by auction of 221 land plots totaling 250 hectares. And Sivulskiy doesn’t even try to calculate the loss to the city budget from nontransparent land sales.
The sums that could fill the city budget if the land sales in the capital were civilized were uncovered during the mayor’s biggest scandal. About 3,000 hectares, or almost 4 percent of total state property in the capital, was simply distributed without any auction to the promayoral majority at the notorious Oct. 1, 2007 Kyiv City Council session. Kyiv was sold to private individuals and commercial entities — land worth nearly $10 billion — far below true market value, according to expert estimates.
The city budget could increase greatly with income from business stocks owned by the city. But during Chernovetskiy’s government, this source of income was practically closed.
The scheme is rather simple: The city’s stake in utility enterprises was diluted, and as a result Kyivans ended up with nothing, Serhiyenko said. The scheme was used with Khreshchatyk bank – the city’s stake was diluted from 70 percent to 23 percent. The same happened with the city’s Kyivproyekt Institute. As a result, the city budget lost about 1.5 million hryvnia in annual income. Holubchenko refused to comment on the question about the bank’s sale.
Charity at others’ expense
For all the accusations that swirl, the mayor of Kyiv has an explanation. The new budget is the most social budget. In practice, it means the financing of all social programs increased by 1.8 billion hryvnia compared to 2007, said Viktor Padalka, the financial director of the City Administration. More than 800 million hryvnia were issued to help the poor. A separate item in the capital’s financial document is 100 million hryvnia in additional payments for street cleaners. According to the Klitschko Bloc’s figures, the financing of the program “Your house, your yard” increased greatly.
The mayor personally promised to increase salaries for doctors and teachers. “We will increase the budget and social payments in the near future too,” Chernovetskiy said.
Andriyevskiy regards such words as nonsense and social corruption. Chernovetskiy’s ability to represent his work as a feat and demonstrate other’s achievements as his own still astonishes the deputy. Almost all fractions of Kyiv’s City Council voted for municipal payments in 2006, but Chernovetskiy and his team didn’t provide money for these payments. But in 2007 when the threat of elections emerged, money was somehow immediately found.
“It is charity at the expense of others and a waste of the budget,” Serhiyenko said. “It’s not really good even for people of modest means.” Serhiyenko explained that rich and poor people pay baseless tariffs for housing services. Oligarchs and paupers buy bread for understated prices. And the compensation for the huge difference is received from social programs. As a result, in a city where the budget accounts for 8,000 hryvnia for every citizen, 7 percent of the population doesn’t have enough money to buy food and 22 percent can only afford to buy clothes on occasion.
Giant sums are issued for infrastructure construction. For comparison, 196 million hryvnia were issued for bridge renewal and construction in 2005 alone, while in 2007 to 2008, 636 million hryvnia were issued for bridge renewal and 1 billion hryvnia for bridge construction. Meanwhile 553 million hryvnia were invested in subway building in 2005 and in 2008, the invested sum is three times bigger – 1.7 billion hryvnia. A big sum was issued for the main sewage manifold, which Chernovetskiy’s assistant considers a time bomb. About 70 million hryvnia was granted for manifold repair in 2007. But Holubchenko promises to demonstrate the results of these investments in several years, when the investments begin working.
Omelchenko is ready to talk about these results now. Over the last two years, not a single subway station was commissioned in Kyiv.
According to the plan, two subway stations should have been commissioned in 2007. No pedestrian underpasses were built and the building of two bridges across the Dnipro River, and the Darnytska railway bridge, were stalled. Residential building is almost on the same level.
Serhiyenko is not surprised by the lack of real results of huge investments. After a detailed analysis of the revenue reports of the Kyiv City Administration, he found that half of the money issued for building was not used.
“People don’t see road junctions, theaters and new residences because they are built on paper — not in real life,” Serhiyenko explained. Andriyevskiy also knows that money issued for city development is not used.
Both of them said it is much simpler for the mayor to use budget funds towards social payments than to look for contractors to build much needed infrastructure and monitor the progress.”
