4.1 Entrepreneurship and Property
4.1.1 Conversion of the Social Infrastructure
Public
Services Sector
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Conversion of the public services sector
can be split into
two principal sections. The first involves institutional
changes:
the removal of housing stock from the balance
sheets of enterprises and municipal administrative
authorities, and the subsequent creation of housing
partnerships and co-operatives;
and the establishment of
joint stock companies from existing housing stock services.
The second section includes the transfer of housing
subsidies from enterprises and the local budget to personal
incomes.
The general scheme used to convert the
public services
sector will change perceptibly, depending on the section
--
the institutional reforms or the restructuring of personal
incomes -- which is used for the "start-up" and
which
continues the process.
The initial transfer of housing studies
to personal incomes
is technically simpler and more logical. Once this measure
has been carried out, institutional transformations can
be
implemented.
If the institutional reforms precede the transfer of public
services subsidies to personal incomes, one is faced with
the problem of financing the housing stock. If the city
(or
region) fails to set up a special fund for these purposes
before the end of this year (i.e.
to provide for corresponding funds both in the local budget
and enterprise
finances), then there is little chance that such resources
will be set aside in the following year.
By that time, state enterprises will no
doubt have been
transformed into joint stock companies. One can already
imagine what the shareholders will decide to do about the
use of profits to finance non-production expenditures. Of
course additional local enterprise taxes could be imposed.
However, the choices open to municipal authorities are
considerably limited. Local budgets now provide virtually
the only sources of financing for a city's entire housing
stock.
However, this plan is feasible in principle.
Given certain
factors (mostly, strict privatization deadlines), it could
be used to convert the social infrastructure.
When drafting proposals to determine the subsidies which
may
be included in personal incomes, we propose the following
steps.
1. The formation of a database. Here, one
should bear in
mind that the existing statistical report form (Housing
Stock Form No.1) is submitted once a year, on January 1.
Consequently we need access to the information submitted
by
enterprises and the municipality to analyse the public
service expenditure of enterprises and the municipal budget
and estimate the resources to be channelled to the financing
of housing stock losses for every quarter and half year.
Moreover, comprehensive data on the structure of the city's
housing stock (municipal property, enterprise or institution
property, or private property), the number of residents,
average living space per capita, and other information is
essential.
2. Estimation of the rise in incomes (per
capita),
engendered by the removal of housing and public utility
subsidies. This requires:
- forecasts of public utility charges;
- forecasts of average monthly housing subsidies
(including
subsidies to the housing stock, from both the city budget
and enterprises);
- the establishment of the numbers and
categories of
individuals entitled to compensation for increases in
apartment rents and public utility charges;
- estimation of the housing subsidies per
capita.
Information submitted by enterprises on
public utility
subsidies should be subject to meticulous analsyis,
especially if it differs substantially from the average
figures. Preliminary estimates indicate that housing
expenditures per square metre vary from 95 kopecks to 28
roubles depending on the enterprise. Such discrepancies
should be attributed to the fact that many enterprises write
off housing expenses as production cost.
3. Determination of the rise in incomes
according to the
average housing space provided to the population.
Consequently, if residents of Arzamas are allotted an
average of 15.3m2 of housing space per capita, then the
compensation is determined on the basis of this figure.
Any
surplus space this will be paid for from personal incomes.
When housing is privatised, citizens become the owners of
the apartments they occupy. Consequently the existing
housing differentiation is reinforced (in terms of quality,
size, prestigious districts, etc.). Such distinctions were
formed over decades: it is therefore unlikely that the
situation can be radically changed in the near future.
Naturally, one can try to "streamline" the situation
by
distributing subsidies according to the average income
increase.
4. The development of approaches to determine
the numbers
and categories of individuals entitled to compensation for
increased apartment rents and public utility charges. Here,
two principal approaches should be examined:
a) subsidies averaged out per adult resident.
This scenario is comparatively simple to implement and
consequently preferable. Total housing subsidies are divided
by the number of working people, pensioners, unemployed,
housewives, and other categories of the population.
This amount is then included in wages, pensions,
unemployment benefits, or is paid in the form of special
grants. A special fund should be created at municipal level
for the special grants and to support low-income earners.
However, it will be insignificant;
b) subsidies averaged out for all residents.
This scenario is harder to implement. In this case all the
subsidies are distributed among all the city's residents,
including dependents (children, students, etc.). This amount
(of course, less than in the preceding scenario) is also
included in wages, pensions and unemployment benefits.
As for dependents, the corresponding payments are effected
monthly from a special municipal fund.
In terms of social justice, such a scenario seems
preferable, as it would enable large families in poor living
conditions to receive funds exceeding their actual apartment
rents. This would create the requisite conditions to enable
them to save money to acquire housing or rent more living
space, and would speed up the development of a secondary
housing market (i.e., redistribution of the existing housing
stock). In any case, such an approach may be considered
as
partial compensation by the state for poor living
conditions.
However, this scenario has a number of
drawbacks: its
technical complexity, and the need to create a large special
fund, with appropriate sources of financing.
5. Estimation of the ability of the city's
enterprises to
give their employees a one-off pay raise in the amount of
the calculated standard wage increase. Consequently, the
accumulation of information on changes in their financial
indices related to income growth.
One should pay particular attention to enterprises,
whcih
did not include the housing stock in their financial
statements and consequently did not bear any expenses for
its upkeep. Increased incomes and product cost could lead
to
a substantial decrease in profits, or make an enterprise
loss-making. Therefore, one should consider the potential
provision of additional tax breaks or special subsidies
for
such enterprises for a certain period of time (for example,
up to 6 months). Such a measure would help them adapt more
easily to the new situation.
Enterprises which listed housing stock
on their balance
sheet could subsequently discover that available resources
had been freed up, as they no longer had to cover the losses
of the public services sector. These funds could be
channelled by the enterprises to works which should have
been financed from the local budget (road construction and
repair, purchase of medication for municipal health
establishments, etc.).
The balance would enable enterprises to
determine additional
financial requirements (if and when necessary).
To make such calculations, one should consider:
- the amounts set aside for the Pension
Fund in connection
with the rise in average wages. These funds could serve
as a
source for a raise in pensions; and
- the increased tax base related to the
enterprises' loss of
tax breaks (current legislation stipulates that profits
channelled to the social infrastructure are tax-exempt).
Another factor could influence the results of such
calculations for specific enterprises. Public utility
charges are regulated by the government or local
authorities. They are set at far lower levels than their
actual cost. To compensate for enterprise losses (heating
stations, water intake, etc.), production tariffs have been
set at excessively high levels for industrial enterprises
and other consumers.
This leads to a substantial increase in
production costs at
enterprises which use these services. Consequently the
population ends up having to pay.
6. Determination of the resources required
to cover wage
increases for employees of budget organisations. Funds set
aside in the city budget to cover municipal housing stock
losses could constitute a main source of such additional
payments.
7. Calculation of the adjustments to be
made to the flow of
money from the "enterprise - local budget". This
entails tax
privileges for recipient enterprises, and agreements with
donor enterprises over the financing of municipal
expenditures in the amount of the "surplus" freed
up by the
removal of public services subsidies, etc., in order to
balance the enterprises' financial potential and the
municipal budget, ensuing from the conversion of city
subsidies for public services to personal incomes.
8. The institutional conversion of the social
sphere: the creation of joint stock companies and housing
co-operatives and partnerships, based on the public services
sector. Privatization plans must all costs consider the
the future of the housing stock listed on enterprises' balance
sheets. The creation of close joint stock companies or limited
partnerships from the public services administrations or
enterprises' departments would seem to be the most acceptable
scenario. Their founders could be state enterprises, local
authorities or other interested parties. At the same time,
a decision must be taken on the transfer of housing ownership
to their occupants, regardless of whether they are employees
of the given enterprise or not. This is necessary, as the
enterprises' maintenance of housing stocks currently grants
them full economic management of the housing: such enterprises
alone may sell or transfer them to individuals. In future,
individuals themselves will decide whether to privatise
their housing. Local authorities or joint stock companies
will register the housing transfers.
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Technical networks, separate buildings (stores,
consumer
service enterprises, etc.), and other material and non-
material assets are transferred to the balance sheets of
joint stock companies. The housing stocks not included in
their statutory capital are entered onto the companies'
balance account.
The issue of land sales to the newly created
enterprises
must be considered separately.
The joint stock companies may not have to produce a profit
during the first two years of operations.
The main sources of revenue will be provided by the
resources remitted by house owners or tenants, rental fees
for provision of non-residential housing stock or plots
of
land, and funds from heating stations to partly pay for
the
transportation of heating substances through the technical
networks belonging to joint stock companies, etc.
Residents will be able to choose whether to register the
appropriate documents to become owners of the housing they
live in, or retain the status quo.
In the first case, the flat owner pays
the cost of public
utilities (heating, water supply, etc.), signs a maintenance
contract with a joint stock company or other legal entity
or
private individual, and advances the requisite funds for
routine repairs and general overhaul of the building.
In the second case, a joint stock company signs a rental
contract with the resident, specifying the cost of the
housing, the rights and obligations of the parties, and
other terms.
In both cases, housing payments for housing
are set at
sufficient levels to cover housing expenditure, including
routine repairs and general overhaul.
Consequently, residents are motivated to obtain ownership
rights, as they thereby enjoy the right to dispose of them
at their discretion: to sell them, give them away, bequeath
them, etc.
As flats are privatised, residential buildings
are removed
from the balance accounts of the joint stock companies and
entered onto the balance sheets of the new housing
cooperatives and partnerships.
The formation of alternative structures to provide public
services should be stimulated in every
possible way.. This will increase competition and enhance
quality on the
services market.
When joint stock companies are created,
particular attention
should be paid to the issues of a socially equitable
"divorce". Employees of the public services sector,
included
on the staffs of enterprises, which list housing stocks
on
their balance sheets, enjoy access to an entire set of
additional services (medical services, food orders, discount
travel packages, places for their children in preschool
establishments, etc.). Moreover, they may have their names
placed on waiting lists for receiving apartments.
Contracts on all these issues should be signed by the staff
who are being transferred to the joint stock company and
the
enterprise's administration and trade union. One could
consider separately employee participation in the
privatization of the enterprise where they worked.
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