Community-owned property is one of the most important components of the financial health of local governments and a critical tool for encouraging economic development. Of all the tools that can be used in local economic development, community-owned property plays a special role, because of its potential to attract investment, develop businesses, and increase local government revenues. Critically, community-owned property’s role in the community’s economic health depends largely on its being effectively managed.
In developed market economies, community-owned property is regarded as a source of real wealth and revenue for local governments. Its management is based on combining the principles of social responsibility and economic efficiency. Local governments use communal property as a way to attract private investment. The careful management and exploitation of community-owned real property can stimulate economic development and increase governmental revenue. Leasing community-owned property can create a steady and dependable revenue stream for local governments.
In Ukraine, local governments have not yet managed to transform this most important developmental resource into useful capital. Community-owned real property can be a crucial factor of the sustained economic development of a community. In many cases, the current patterns of use of real assets by local communities are inefficient both from the viewpoint of the development of the business and investment environment and in the development of local budget revenues.
There are many reasons for these problems. First of all, for a long time, land and structures were not treated as integral real property objects. This created discrepancies between the legal and the regulatory environment of land plots and other real assets. It also created a supervisory vacuum in the control of the real property and its financial potential. Furthermore, the formation of real assets in communal ownership is still in progress, as the process of delimitation of state and communal lands is still in its developmental stage. Often, local government bodies do not have a clear picture of the status of ownership of real assets under their control.
Under these circumstances, local communities’ titles to real assets often are not properly registered as provided by law. This situation hinders the management of such objects and the assurance of their protection. Currently, there is no clear-cut register of profitable communal property objects that could serve as a source of budget revenue for local communities, and many unfinished construction sites have not been viewed as economic developmental possibilities and are losing their attractiveness for investors.
That is why, to exercise control over a local community’s real assets and to optimize the decision-making process regarding their use, it is expedient to compile and maintain an integral register of real assets in communal ownership, featuring systematized data on all land plots, buildings, structures and premises owned by local communities.
A register is an information system that is a collection of data on subjects and objects of communal property and the related material rights arranged in accordance with uniform methodological and technical principles.
The basic principles of such an information system are:
- A uniform system for object identification.
- A single entry of information.
- Clear responsibility for the completeness and the validity of available information.
- Assured user access to the information and control of access to prohibit unauthorized access.
- Regular information updates.
- Protection of the information within the register and the independence of the information from outside influence.
It would make sense to entrust the organization and performance of the register to an authorized local government agency for communal property management and to ensure that the municipal office of economic development also has access to the database in its offices. A communal property agency would have the task of drawing up appropriate regulations on the creation and the maintenance of the complete communal property register and the submission of the regulations to the local council for approval.
In planning the creation and maintenance of such a register, it is important to envisage the development of an integrated system of indicators for the recording, verification, and analysis of property objects, the elaboration of rules and procedures for updating data, a system of differentiated access to information for different categories of users, and measures of control to prevent the submission of unreliable or incorrect information.
Such a register must include a description of property objects, including individual features, to unambiguously distinguish objects and contain specific data on such objects (location, metric indices, value, encumbrances, etc.).
Registers of territorial communities’ real assets are best maintained for various types of objects, e.g.: land plots, buildings and structures, premises, objects of engineering and transport infrastructure, and municipal amenities, green areas, and unfinished construction sites.
It should not be forgotten that the primary item for recording real assets should become, according to the Civil Code of Ukraine, an integrated property object consisting of a land plot (or a portion thereof) and all related structures. After that, land plots are assigned unique cadastral numbers directly tied to individual numbers of communally owned structures located on such land plots.
Such identification of recorded objects will not only contribute to reducing the cost and shortening the length of time required to develop the register, but will also serve as a basis for ensuring that the register is compatible with other databases maintained under the framework of state and departmental record-keeping. Much of the data necessary to create and maintain the register is already available from databases of the State Land Cadastre, technical inventory bureaus, and local government bodies for the management of communal property, as well as from enterprises and institutions to which communal property have been transferred for day-to-day management or economic administration.
A register of real assets managed by a territorial community is expected to organize dispersed databases, to assure information backup, and to facilitate real control over revenues and expenditures related to real communal property. Maintaining a register allows a complete picture of the current technical and financial status of the entire body of real property, by types of objects, and of each individual object.
The technical condition of objects is described by information such as land plot area, site area, total and usable floor area of structures, structural cubic capacity, date of commission and date of last capital repairs, structural materials, the degree of physical deterioration, and engineering services characteristics.
Financial indicators include the monetary valuation of the land plot, the cost of construction, inventory value (minus depreciated cost) of structures, and the cost of maintenance, as well as proceeds from the leasing of the objects. Over time, it is expedient to supplement the recorded value and depreciated cost of each object with its market value.
As a tool for keeping object-by-object records of community-owned property, object certificates drawn up by local bodies of Derzhkomzem (the State Committee for Land Matters) and technical inventory bureaus should come in handy.
It is important to record the ownership and control of community-owned property objects. For this purpose, a special communal property subject registration form should be created for each piece of communal property.
Efficient management of communal property can be driven by using modern computer-based information systems, including those based on geographic information technologies. The information systems should support the operational analysis of data on the condition of communal property and its efficient use, the current pattern of legal relationships, the dynamics of property revenue and its use, the soundness of decision making in respect to the composition of the property, and changes in forms and methods of its use.
The creation and maintenance of a real asset register is directly tied to the legalization of titles to territorial community property. The protection of communal property rights is one of the chief obligations in the management of communal property. A duly registered title to a communal real asset can be disputed only in court.
Data contained in the register may and should be used for the purpose of classifying real assets into functional groups. These functional groups include the following:
- Objects used for the performance of obligatory functions assigned to local governmental bodies.
- Objects used for the performance of satisfying socially significant needs of the territorial community.
- Objects used for the performance of functions that are not included in the duties of local government bodies, i.e. that are, in effect, beyond their legal responsibilities.
Naturally, assigning each asset to one or another group will depend on specific circumstances and on the amount of communally owned assets, while classification as such and the basis for the financial management in respect of each group must be based on discussions and approval by the local council.
Thus, it is obvious that operational and repair expenses for the first group of assets would necessitate obligating funds, whereas maintenance costs for the second group may be covered in full or in part. In addition, objects in this group may be leased or transferred into economic administration to organizations and enterprises on such preferential terms that may be more favorable than those found on the open market. As regards the third group of objects, such objects are bound to generate net effective income for the city, and where this cannot be achieved; the local community concerned may sell the asset or relieve itself of the maintenance costs.
In this manner, classification of communal real property facilitates the systematization of operating costs, depreciation charges, subventions etc., as well as revenues of local government.
In assigning the local community’s real assets to a specific group, it is necessary to evaluate the objects in a manner that prohibits the possibility of one part of an object to be disposed of without another part in cases where both constitute a single whole, for example land and structures situated on it. In particular, land in communal ownership may be transferred into the exclusive control of communal (municipal) enterprises and establishments, whereas when commercial use is intended, land plots, to secure increased budget revenues, are to be leased or sold.
Compiling registers of real assets in communal ownership is not an end in itself. It is subordinated to the primary function of communal property, to serve the social and economic needs of the general public and to act as a source of revenue.
Improving the information system of communal property management can promote the achievement of the following objectives:
- Optimizing the performance of local governmental bodies in the provision of social services.
- Maximizing the potential of communal real assets revenue.
- The use of unused communal property for the economic benefit of the community. Assuring entrepreneurs a clear and clean route to the use of these non-required assets.
- The moving of vacant land plots and unfinished construction sites into successful economic application.
