Ara Martirosyan

State subsidies to communities are one of the few incentives for running for the office of community mayor. It is not uncommon, especially in villages, for funds from the state budget, i.e. our pockets, to be wasted, or simply used for the local mayors' own personal needs.

Let us first find out why and how these subsidies are allocated. We were told by the Ministry of Finance and Economy that the state began subsidizing communities from its budget in 1998. The amount allocated then was 3.7 billion drams (about $6.5 million). In 2003, 9.1 billion drams (about $16 million) was allocated to the communities, taking into account population and land and real estate tax collection figures. Each payment is a "non-repayable subsidy, granted for assuring the harmonious development of the communities".

Of course, this raises the question: Who supervises the efficient and targeted utilization of these subsidies and how? According to the Law on Local Self-Government, supervision is by each local council. The council has the right to check any budget allocation and its effectiveness, and demand reports on spending from the local mayor. Moreover, the council can evaluate the mayor's proposals to determine how the subsidies are used. However, as it so often happens in Armenia, reality has little to do with the law.

We visited the villages of Zar and Garni in the Kotayk Marz to verify information we had received about the poorly-targeted utilization of funds from the state budget. Matevos Matevosyan, the mayor of the village of Zar (population 522) told us that this year's village budget is 7 million drams (about $13,000), of which 1.9 million drams (about $3,500) is a state subsidy. He said that last year's village budget was 13 million drams, with a state subsidy of 900,000 Drams. "The budget performance last year was 56%. Before that, 18% was considered normal. That may be one reason the subsidy went up in 2003. We've received regular state allocations for two years now. That didn't use to be the case," the mayor said. He maintains that the former mayor (now deceased) and the local council drew up an excessive budget, which was impossible to administer. This year's budget performance has been 60%.

In response to our main question of how the state subsidy had been spent, we learned that the former mayor, in office for 36 months, had paid salaries for only 10 months. The 26 months of back wages amounted to 2.4 million drams. The current mayor says that during his tenure, he has paid six months' back wages. Because of accumulated electricity debts, the water pumping station, the mayor's office, and the cultural center were without power. He paid these debts as well. Mayor Matevosyan complained of shortcomings in the law: "Why should I pay off debts for wages, electricity and telephone accumulated because of bad management by the previous mayor? The debt to the pension fund for unpaid wages alone is 144,000 drams."

Between June and September 2003, the prosecutor's office of the Kotayk Marz brought actions against the mayors of seven villages, including Zar and Garni, for losses to the state (false documents had been presented to the government regarding payments of family allowances). Although the wrongdoing occurred under his predecessor, the current mayor is responsible for paying 281,000 drams to the local budget.

How did the local council participate in the spending of subsidies? As we have mentioned, the council approves the budget and may demand spending reports from the mayor. Elections for the mayor's office and for the local council in the village of Zar were held on separate dates (one of the previous mayors resigned and the dates were changed). "The current council members were elected a few months ago, and did not participate in preparing the current budget. It was approved by the previous council. Generally speaking, the law on local councils is deficient. Competent people should be elected to the councils. Even if the mayor is elected under the pressure of big clans and groupings, they still should be able to make him work," Matevosyan said.

In the village of Garni, there was a somewhat different picture. First, it is a much bigger village, with a population of 8,000, and the local mayor has been in office for seven years now. So there was no way to accuse the former administration of wrongdoing. The mayor of Garni, Ashot Vardanyan, told us that the state subsidy for 2003 was 20 million drams, and the budget itself was 31 million drams. Only 30% of the tax revenues expected from land and real estate were collected. The mayor attributes this to an irregular water supply, explaining that water shortages are the result of electricity debts accumulated for pumping water to the uphill parts of the village. When the debts aren't paid, the electricity to the pumping station is cut. In order to break this vicious circle, a water pipe that doesn't need electricity is required, which the mayor says will be ready in a few months.

As far as the subsidy itself is concerned, the village has already received 12 million of the 20 million drams. Surprisingly, although the village administration faired so poorly in local tax collection, the community regularly receives state subsidies. Mayor Vardanyan believes that the state subsidies are not connected with the tax collection, although as we described above, one is directly conditioned by the other. Moreover, in addition to this year's subsidy, the village has also received some money accumulated from past years' subsidies. This was used to pay off back wages. Five million drams of the electricity debt for irrigation was paid off. Six million drams remains to be paid.

Ashot Vardanyan says that the local council takes part in the decision-making on spending, with all ten members involved in the process.

But the mayor's statements were contradicted by what we had been told by certain council members. Aram Hayrapetyan, in particular, though he confirmed that they had taken part in budget discussions, said that in fact the council had not approved the budget. And Gurgen Khachatryan added that the same was true of previous years' budgets. The council was aware of the amounts of the subsidies, but not about how the money was spent. Only three council meetings were held, and none of the decisions made was implemented. In particular, one decision was made to make an ambulance and a school bus available to the villagers. "He has been mayor for seven years-why don't we ever discuss what he has done at council meetings?" Gurgen Khachatryan asked.

Neither he, Aram Hayrapetyan, nor their fellow council member, Vahagn Stepanyan, was aware that Mayor Vardanyan faced a court action seeking 431,000 Drams in losses. "Information about fifteen families was incorrect; their livestock was under-reported. This wasn't done on purpose, of course; the villagers give information on livestock to the social services themselves," the mayor explained, adding that the necessary amount had already been paid using local taxes, in other words, the community budget.

The examples of Zar and Garni illustrate how state subsidies to the communities are managed, and to what degree the local councils participate. The picture is not comforting. In fact, existing legislation affords local mayors the opportunity to isolate local councils and manage the funds at their own discretion. And the fact that the prosecutor's office revealed damages caused to the state not only in these two, but in a number of other villages as well, testifies that the funds are mismanaged.

The two mayors we met with assured us that the amounts demanded by the courts have either been paid or will be paid soon. But it remains unclear at whose expense they are being paid. In any case, it is not at the personal expense of the mayor responsible for the wrongdoing. Thus, the mayor can make an expenditure without informing the council, which has no lever for control, and when the wrongdoing is revealed, compensation for the losses is made from the local budget. It is necessary to amend the laws to clarify the jurisdiction of the local councils and to define the personal responsibility of the local mayors for mismanaging state funds. Perhaps then the post of local mayor will become less attractive.