MUNICIPAL ASSETS MANAGEMENT IN GEORGIA: CASE OF MTSKHETAMUNICIPALITY

NinoGerkeuli &Paata Mirziashvili[1]

Abstract

Georgiabelongs to the countries where the principles of decentralization and democratization are publicly declared but legal, economic and political mechanisms are unable to ensure development in this direction. The present study aims to highlight existing problems in local governance focusing on the sphere of municipal assets management through scrutiny of the on-going property devolution process. Case of MtskhetaMunicipality in which one of the authors has been working for years is presented. Research is based on analysis of legislation, interviews and data fromthe Ministry of Economic Development of Georgia, Mtskheta-Mtianeti Regional Administration, Gamgeoba (executive body) of Mtskheta Municipality, Departments of Finance and Budgeting, Economic Development, Bureau of Pre-school Service at Mtskheta Municipality. As far as original paper was written in Georgian and translation took significant efforts and time authors remain the right for its adjustment for publication purposeslater.

Municipal property

1. Process of decentralization

Elections in 1991 was the first attempt to launch the process of decentralization and establish self-governancein Georgia. But the social and political situation in the country did not allow elected local self-government units to operate successfully. In fact, process of decentralization and creation of local self-governments started in 1997 with the adoption of Law on Local Self-Government and Governance that definedbasic principles for creation of local self-government assets.

Later, in May of 1999 President of Georgia issued an Order concerning the regulation of devolution of the state-owned property tolocal self-governing units. In the same year the Law concerning Economic Activity of Local Bodies of Self-Government and Government was adopted that in essence was repeating statute and mentioned regulation.Particularly, clauses concerning creation of self-government unitproperty and property rights of local self-governments were identical.

Despite adoption of abovementioned legal acts, no property has been transferred into the ownership of local self-governments and these legal acts had only formal character. There was no political will to establishconstant property basis for local self-governments and consequently no property of local self-government existed in the country.

After the Rose revolution reasoning from the necessity of decentralizing governance and with the purpose of ensuring more effective functioning of the Self-governingunits, the issue of improving their property basis as a significant prerequisite for exercising exclusive authorities of Self-Governmentsassigned by the law, was placed on the agenda.

In2005 Law concerning Self-Government UnitProperty and Organic Law on Local Self-Governments were adopted that defined the categories of the property of the Self-Government units, providing guidelines for their creation and property rights.It should be mentioned that issues related tothe management and administration of land and natural resources were regulated by separate law. Presidential decree # 678, which identified the list of the state owned property to be transferred to local self-governments as a basic propertynecessary for fulfillment of exclusive authorities of local self-governments, entered into force on 8 August 2005.

Asset classification

According to the legislation of Georgia, a property of the Self-Government unit can be a property that the state transfers to the Self-Government unit in ownership, or which the Self-Government unit creates or purchases, according to the guidelines set forth by the legislation of Georgia.

There are two categories of the transferable property to a Self-Government unit: basic (inalienable) and additional property. Basic (inalienable) property is a property necessary for execution of exclusive functions Local Self-government, while additional property is all other property that can be alienated by local self-government unit any time according to the guidelines set forth by the legislation.

According to the Order #687, issued by the President of Georgia on August 8, 2005, categories of basic (inalienable) property are:

  • Administrative buildings-constructions or some of their parts with a piece of land attached to them, where the buildings-constructions represent their substantial part, also the relevant property which is necessary for implementing administrative activities of the local Self-Government bodies.
  • State-owned gardens, squares, boulevards, fountains, parks, green areas and riverbank enforcement constructions of local importance, that are located on the subordinated territory
  • Internal roads, bridges, tunnels, streets, underground crossings, subways, sidewalks, traffic lights, street lightings and other elements of transport infrastructure, also the necessary fire-fighting facilities of local importance.
  • State-owned archives, museums, libraries, theatres, culture houses and other cultural facilities of local importance.
  • Graveyards, pantheons, crematoria and facilities of ritual services.

Paragraphs removed from the Order #687 on 17 July 2006 are:

  • Sewage, rain-stream canals and melioration systems and facilities with relevant infrastructure of local importance.
  • State-owned urbanization, design and construction facilities, also the facilities for rehabilitating internal roads of the town that are of local importance.
  • State-owned facilities of local importance for sanitary purification, disinfection and also recycling facilities, landfills and the infrastructure for depositing solid waste.
  • State owned information facilities of local importance, local information centers and buildings and constructions necessary for their functioning.

State transfers property into ownership to local self-governments free of charge, gratuitously.Transferable property can be not only a movable or immovable property but also enterprises in the indicated spheres in which the State owns some shares. Transfer of the latter to the Self-Government is less problematic, whereas there are some difficulties related to the transfer of movable and immovable property.

There are particular procedures and mechanisms set forth by law for property devolution. In order to request and receive basic and additional property from the State Government, Local Self-Government Units should follow the process presented below:

  1. Local self-governing unit should identify transferable state-owned property on its territory, check this information with the data of the Ministry of Economic Development (Ministry has a database on most of property existing on the whole territory of Georgia) and finally identify the list of needed basic and additional property.
  2. In order to apply to the Ministry of Economic Development with the list of property the self-governing unit should fill in the property request forms;
  3. Self-governing unit should apply to the Ministry of Economic Development with the property request letter with filled out and attached property request forms. Letter and attached documents should be submitted to chancellery of the Ministry. Self-governing unit should require registration number and date from the chancellery in order to simplify process of getting information;
  4. Self-governing unit should follow up the process. According to the Law concerning Local Self-Government Unit Property the Ministry of Economic Development should make a well-justified, positive or negative, decision, and inform requester in writing on the submitted requests within 3 months after their submission. The decision should be submitted to Georgian Government for approval within 10 days. If Government makes no decision within 6 months, the property specified in the request will be considered transferred into the ownership of local self-government units. Consequently, self-government unit should scrutiny fulfillment of abovementioned regulation.
  5. Ministry of Economic Development and Self-Government Unit sign a contract on property transfer.

6. Within 60 days from signing the contract the Self-Government Unit must register the received property.

As for the roads, bridges, tunnels, streets, underground crossings, sidewalks, traffic lights, street lighting, gardens, squares, boulevards, fountains, parks, green areas and riverbank enforcement constructions of local importance, according to the Amendments to the Law On Property of Self-Government Units introduced on June 23, 2006 by the Parliament of Georgia, the Law declared this type of property as the property of a Self-Government unit, and, if necessary, the local Self-Government unit can address the Public Registry without permission of the Ministry of Economy, register it as its property and dispose it according to its views.

The Ministry of Economic Development is responsible for inventory and registration at Public Register Office the transferablebasic (inalienable) property listed in Presidential Order #687.

The process of devolution of state-owned property to local self-governments was long, contradictory andit is not completed yet. According to ENP and EU recommendations this process in Georgia had to be completed until the end of 2007, but there are some reasons that caused delay:

  1. Ministry of Economic Development and Local Self-governments factually have no comprehensive data on property under the State ownership;
  2. The process of devolution was not planned properly and law-makers were not aware on possible difficulties. According to the procedures envisaged by law, process of inventory of the property happened to be too expensive and Local self-governments were unable to fulfill this task.
  3. Central government was going to rearrange existing system of local governance and transfer property to newly createdSelf-government Units.

Other objective reasons existedas well for prolongationof this process. Incompetence of Local Self-government officials can be named among them. Some municipalities claimed property not liable for devolution. Forexample,BorjomiMunicipalityclaimed for theMuseum of Local Lore, but failed to prove necessity for its ownership. AdigeniMunicipalityclaimed forelementary (primary)schools trying to qualify it as a main property thus it is not included in the list of basicproperty approved by President. AspindzaMunicipalityin the same wayclaims forstadiums. AkhaltsikheMunicipalityclaims for the local branchesof TbilisiState and TechnicalUniversities as well as Lyceum and College of Agriculture, buildings of Gubernia, Meskhety State Theatre and Patriarchy. All of above mentioned municipalities lack adjusted argumentation and consequently they will not get this property from the State.

One more obstacle in the process of property devolution is that property transfer is accompanied by transfer of liabilities. Most of objects existent on the territories of municipalities have significant debt and local self-governmentslack sufficient funds to deal with it. So, they are not willing to take responsibilities for such property. In this situation the best solution might be thecutting off liabilitiesofsuchproperty by Statebefore devolution. After that Local Self-governments could decide will they administer or privatize this property.

Changes in Legislation 2007

The frequent change in legislation is seen as an important factor as impediment in the process of development of Local Self-governance in Georgia. As a consequence of changes laws,statutes,regulations frequently contradict each other and even main principles of European Charter on Local Self-Government.

In particular,number of Amendments to the Organic Law on Local Self-Government and the Georgian Law Concerning Local Self-governing Unit Propertyhas been introduced in 2007. From the Law on Local Self-governing Unit PropertyArticles concerning property management have been removed and now this sphere is regulated bythe Organic Law.

The goal of above mentioned changes was to create unified regulation for the management and administration of State-owned, municipal and privatized property.

As a result of Amendments introduced in 11 July 2007 to theOrganic Law on Local Self-Government authorities of the representative body of Local Self-government (Sakrebulo) in the sphere of property management involve only:

  • Authorization of the list of Self-government Unit property subject to privatization;
  • Determination of initial price considering market price of the property based on the Presidential regulation on determination of the land normative price;
  • Approvalof the typicalforms for Self-government Unit property report,protocolof auction.

The role and functions of Sakrebulo in the sphere of privatization is decreased. That limitsof Sakrebulo in the sphere of fulfillment of its exclusive authorities prescribed by the same law. In addition theobligationsand accountability of the executive body (Gamgeoba/City Hall) towards representative (Sakrebulo) in the field of control and monitoring of privatizationprocess are not determined.

Authorities of executive body of Self-governing unit (Gamgeoba) in the sphere of property management are:

  • Making decision on putting enterprises under their management into sawesdebo Capital funds?
  • Privatization of Self-governing unit property or administer otherwise;
  • Making decision on privatization through auction;
  • In accordance with legislation of Georgia ensure transparency of information on Self-governing Unit property subject to privatization;
  • Making decision on transfer of property through the form of direct administration;
  • Fulfillment of other authorities defined by legislation of Georgia.

Sakrebulo is loosing authorities that it needs for execution of its exclusive functions prescribed by law. It would be better if executive body acts as mediator and provides technical provision of privatization process. Otherwise it will hamper the process of development of independent and economically strong local Self-government in the country.

The rule and forms of alienation of Self-governing unit additional property has been also changed. If before property was alienated through competitive bidding, auction, lease-redemptionor purchase of property through direct sale methods, today privatization of self-governing unit property is possible only in forms of auction and direct sell. In addition, to executive, legislative, judicial bodies, prosecutor, as well as legal entities of public law, executive body of Local Self-government is transferring property free of charge, in form ofusufructor lend without auction.

Should be criticized the form of direct sell of self-governing unit’s property by President that contradicts European Charter on Local Self-government and Organic Law of Georgia on Local Self-Governments.On the basis of competitive bidding, before the expiration of the period determined for revealing interest, interested parties should present bank guarantee or allocate on relevant deposit 5% cost of privatized property. President has a right to neglect, ignore imperative norms and make final decision without abovementioned rule.

According to the Article #47 of Organic Law,the Self-governing Units own:

a.) Non-agricultural land (roads, streets, squares, etc of local importance) on the territory of the self-governing unit, except for the land plots under the private ownership and attached to the state property and to the property existing by the state’s stake participation; and also for the land plots under the indicated category of property (state land or public property with State’s share in it), subject to attachment according to the rule set by Georgian legislation;

b.) The land attached to the objects owned by the self-governing unit;

c.) The agricultural land on the territory of self-governing unit, except for:

d.)Forests and water resources on the territory of the self-governing unit having local importance.

Despite the fact that agricultural as well as non-agricultural land was transferred to local self-governments according to law the land shallbe executed by the Ministry of Economic Development.

Local Self-governments were empowered with the temporary rights in the sphere of immovable property management. Particularly, executive bodies of Local Self-governments are responsible fortransfer of non-privatized dwellings and non-residential (isolated or not) areas to factual owners free of chargealong with recognition of their rights of ownership of legally as well as illegally owned land.

Clarity in separation of functions of central and local governments in the field of management and administration of local self-government property is important. It is necessary to empower local governments with more independence in the sphere of property management. That will positively influence investment climate and economic development of municipalities.

Country data

Since the spring of 2007 municipalities made inventory of property on their territories and sent to the Ministry of Economic Development of Georgia filled relevant forms of request. Municipalities mainly requested basic property necessary for execution of exclusive authorities, such as administrative buildings, cinema, clubs, libraries, specialized schools (arts, etc), cemeteries, objects of water supply and sewage system. As for additional property self-governing units are mainly focusing on kindergartens, sport facilities and stadiums. In 2007 request of up to 50 municipalities wasfully satisfied. Process of devolution is on-going.

Based on the data from the Ministry of Economic Development total cost of property transferred to Local Self-governments is 68 million 853 thousand Laries (GEL). Thus it should be mentioned that estimation is based on so called Expert evaluation as real estimation /evaluation has never been conducted. It’s important to have in mind that the vast majority transferred property is amortized and require capital repair.

Important factor that has been revealed is that some municipalities such property as cinemas, clubs, libraries, museums and musical schools own as additional property, while others - as basic. For example, music schools in Tsalendgikha and Qeda. Local Self-governments are restricted to alienatebasic property by law. Alienation of such property is possible based on decision of Sakrebulo only in case if creation or purchase of new property caused the loose of meaning and value of existent property. Consequently, TsalengikhaMunicipality will be available to get revenues after privatization of propertyreceived as additional, while municipality of Qedafrom the property of the same category will not.

Many municipalities are not active in claiming for devolution of propertyfor the several reasons:

1)the lack of financial resources in municipalities;

2)vaguenessin the sphere of immovable property as a result of the fact that vast majority of this property is not registered in Public Registrars office as State property (state transfers property only after it is registered)Namely, immovable property cannot be transferred without registering it as state property in the Public Registry. Thestate is not authorized to dispose of the property, if it does not have a certificate confirming relevant ownership, issued by the authorized body, in this case –the Public Registry. Registration of the property in the Public Registry isrelated to creation of identification documents (cadastral mapping,etc.), which requires significant funding.