Page 6 - UKRRptSept20

there are cases of considerably larger OTGs. Villages typically united around the biggest village or small local town.
The process of unification was the most controversial part of the reform. Many villages or their public representatives didn’t want to lose their “sovereignty” while becoming part of the larger community. Therefore, the whole process was voluntary. Communities could merge into a OTG on the basis of mutual agreement and, subsequently, receive additional authority and tax revenues. Otherwise, they could remain a small separate village, controlling its own territory but with fewer revenues and relying on low-quality public services from regional state administration.
OTGs in Ukraine. Blue and green – OTGs with centers in villages and local towns. Yellow and brown – OTGs in the process of unification. White – territories where locals are yet to voluntarily create an OTG. Source: decentralization.gov.ua
During 2014-2019, in total 1029 OTGs were created in Ukraine on the basis of voluntary agreement between villages or villages and small towns. Today OTGs cover 44.2% of government-controlled Ukrainian territory (excluding occupied Crimea and Donbas). All the rest belongs either to still unincorporated villages or bigger cities.
11.7 million or 1/3 of Ukrainians live in OTGs. Another 27.5% of Ukrainians still live in separate villages and small towns that haven’t formed their OTGs. The other 39.5% of Ukrainians live in cities that already had tax preferences before decentralization.
The general consequences of the reform are promising. To better explain them, one should consider separately financial and administrative decentralization.
Financial decentralization means that 60% of the individual income tax and some other taxes that used to be allocated to the district (rayonnyi) or central budgets are now allocated to the budget of OTGs. Therefore, municipalities now can manage a substantial part of the costs.
Moreover, OTGs now can receive educational, medical, sport and other subsidies directly from the state and allocate them to local needs independently, which is a great improvement over the previous situation, when subsidies for villages and small towns were entirely managed by state district officials with minor participation from locals.
Consequently, since the beginning of fiscal decentralization, local budget revenues have been growing faster than revenues of the central budget. Partially that was achieved simply by the creation of OTGs, where a large part of taxes now remain instead of going to the central budget.
In the long-term, the local revenues grow yet more, since OTGs are now more interested in fostering local entrepreneurship and becoming more self-sufficient. The potential for development and the possibility for businesses to engage with local authorities faster also facilitates the development of OTG’s.
Financial decentralization also means that the state raises the amount of subsidies and state programs designed to promote local infrastructure,
6​ UKRAINE Country Report​ September 2020 ​ ​www.intellinews.com