Despite the tight budgetary constraints it faces, the municipal council of Vanadzor decided to forgive a portion of the debts owed by “Prometheus-Kimprom” and allocate a partially constructed sub-station it owns to the “Electric Networks of Armenia” (ENA), CJSC. The chemical complex is the largest debtor of Vanadzor’s municipal budget. ENA’s outstanding property taxes and accumulated penalties for the past five years amount to 99 million drams.

The Vanadzor mayor’s office went to court at the beginning of 2009, to have its debts impounded via legal channels. Soon afterwards, however, the two sides reached a mutually acceptable agreement and the court case was closed. Vanadzor Mayor Samvel Darbinyan promised the factory’s management board that he would review the matter with the municipal council and that he would, via the proper legislative channels, forgive 10% of the company’s debt. “It is easier to lead the company to bankruptcy, but we decided not to take that step because it’s our residents who work there,” argues Mayor Darbinyan. The council, after deliberating the matter, decided to forgive 10% of the chemical plant’s debts, some 8 million drams. Councilman Armen Ayvazyan was the only dissenting voice. He believes that the company, incapable of paying off the principal amount, will neither be in a position to pay off its debts in the future. Armen Ayvazyan also opposed the decision to allocate property to the “Electric Networks of Armenia” CJSC. Vanadzor’s mayor had gone to the ENA with the request that it supply electricity to new buildings being constructed in the town’s Taron neighborhood. ENA proposed that the company assume the work and that as payment in kind it be given a partially built sub-station in the neighborhood. The mayor went before the council with the proposal to allocate the sub-station to one of Armenia’s biggest taxpayers, ENA, arguing that the move was imperative. “We were supposed to build the sub-station and hand it over to ENA but we don’t have the fund. Thus, it makes more sense to hand over the semi-finished station to ENA in lieu of which they will cover the costs of the additional work.” Council member Seyran Ghambaryan asked, “If the company furnishes and runs the station won’t it make money?” Despite his protestations and those of Armen Ayvazyan, the council voted to hand over the station to ENA. However, according to Mr. Ayvazyan, the council doesn’t have the authority to execute such a transaction. “They could have sold it, even for pennies, but not allocate it,” claims Mr. Ayvazyan. Karen Tumanyan, an attorney with the “Populex” legal firm also contends that the council doesn’t have the right to gift property to commercial enterprises since it violates the RoA civil code. He points out that the community has the right to receive contributions but that it cannot make awards to commercial enterprises.

Will Growth in Government Lead to New Efficiencies?

Despite this year’s budget cuts, the Vanadzor municipal council decided to create a new division and organizations. The council decided to create a division called “The Division to Legalize Illegal Edifices”. The council also decided to allocate 6 million drams to fund the new division that will have five employees on the payroll. The majority of the fourteen member council agreed with the view of the mayor that the new department would assist the town in its fight to halt the legitimization of illegal construction. It is the contention of the mayor that the municipality’s Department of Construction and Architecture doesn’t have the means to carry out the task. “This department has been operating under a heavy work load for the past 3-4 years. Sure, it has accomplished a lot in the field but we see that there are many issues involved and the fight against illegal construction has slowed as a result,” stated the Vanadzor Mayor Darbinyan. He believes that merely adding to the department’s staff wouldn’t have the desired effect in preventing the spread of illegal construction. Thus, the correct approach is the creation of a new department and the mayor expects that the local budget will be augmented by fees paid to legalize heretofore illegal structures. Councilman Armen Ayvazyan totally disagrees with the mayor and voted against the formation of the new department, viewing it as an unwarranted budgetary burden. For Mr. Ayvazyan, the only issue solved by the new department is the creation of new jobs. Otherwise, they could have expanded the area of responsibility of the existing department or increased its staff. Even without this latest move Mr. Ayvazyan believes the paid staff of the mayor’s office, now at 156, to be bloated. In his words, the work done by a portion of the staff is unproductive. “We are making cuts here and making additions there,” he says. The council agreed to the suggestion of the mayor that cuts be made in the accounting staff. The council also decided to create a non-commercial organization called “Accountant”. The new organization will preserve the jobs of ten out of the sixty-four accountants now employed by the mayor’s office and enterprises under municipal jurisdiction. The layoff of accountants isn’t only a cost-cutting measure but based on the non-productivity of a majority of the salaried positions. Gagik Simonyan, secretary at the Vanadzor mayor’s office, when explaining the need of the new organization to the council members, noted that the town would economize by having most the accountants working more than one job at once. The newly-formed “Accountant” organization will save 10-15 million drams per year out of the 30 million now being expended. The Vanadzor mayor’s office and city council, seemingly adopting a policy of economization, made a modification to the 2009 budget and decided to allocate 60 million drams to build a warning system for all municipal enterprises. Thus, 10-12 million drams will be spent yearly on the security services. According to the calculations of Artur Soukiasyan, who heads the finance division at the mayor’s office, 90-100 million drams will be saved yearly by spending 60 million all at once. Until now, the mayor’s office spent such a sum on paying the security agency. Revenues Down Over Last Year Having accepted the 2009 budget’s first quarterly performance report, the council noted that revenue collection figure had dropped over the same period last year. Revenues realized for the first quarter amounted to 387 million drams; 67.1% of the forecasted 587 million. Mr. Soukiasyan pointed out that this is 36 million less than last year’s figure. As a reason for the low revenue collection figures, Mr. Soukiasyan points to the low realization level of 13.9% for revenues within the reserve budget. Thus, out of a forecasted 143 million only 20 million went into the reserve budget, a drop of 111 million over last year. “This is natural in a way because property, from a sales point of view, is a limited resource. It gradually decreases and so to do the revenues derived,” notes Mr. Soukiasyan. At the same time, the mayor’s office also points to the existing financial situation as a factor in the revenue drop. Revenues for the administrative budget amounted to 122 million drams, or 84.5% of the forecasted 428 million. This is 82.5 million more than was registered the previous year. During the first quarter, the Vanadzor mayor’s office spent more than it took in. Expenditures amounted to 79% of the 67.1% of revenues collected. 96 million remains from last year’s debt of 106 million drams for salaries and urban economic projects. Mr. Soukiasyan views this as a positive trend, maintaining that the debt will be repaid by year’s end.