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HOUSING SECTOR REFORM PROJECT II FINAL REPORT Prepared for Prepared by Raymond J. Struyk Housing Sector Reform Project II Project 110-0008 U.S. Agency for International Development, USAID/Moscow Contract No. EPE-0008-C-00-5118-00 Maxim Dovgyallo Alexander Puzanov Andrei Tkachenko Alexei Novikov Sergei Sivaev Robert Wiklund September 1998 UI Project 06611 THE URBAN INSTITUTE 2100 M Street, NW Washington, DC 20037 (202) 833-7200 www.urban.org 1 TABLE OF CONTENTS EXECUTIVE SUMMARY ..................................................................................................................... 4 OVERVIEW ........................................................................................................................................... 6 1. INTRODUCTION ................................................................................................................................. 7 2. SUMMARY OF ACCOMPLISHMENTS ................................................................................................... 10 PRINCIPAL ACTIVITIES .................................................................................................................. 22 3. DEVELOPMENT OF NATIONAL LEGISLATION ..................................................................................... 23 4. HOUSING DIVESTITURE AND WORK WITH REGIONAL CITIES .............................................................. 32 5. HOUSING FINANCE .......................................................................................................................... 55 6. AGENCY FOR RESIDENTIAL MORTGAGE LENDING ............................................................................. 85 7. INFRASTRUCTURE FINANCE: LONG-TERM DEBT FINANCING OF CAPITAL INVESTMENT FOR MUNICIPAL INFRASTRUCTURE ............................................................................................................................ 93 8. SMALL GRANTS PROGRAM............................................................................................................. 106 THE FUTURE .................................................................................................................................... 115 9. INSTITUTIONALIZATION ................................................................................................................. 116 10. WHAT REMAINS TO BE DONE ........................................................................................................ 121 2 ANNEXES A B C HSRP PRESENTATIONS AND SEMINARS LIST OF PROJECT REPORTS LIST OF STUDY TOURS 3 EXECUTIVE SUMMARY Few donor programs can claim to have succeeded in fundamentally reforming a major economic sector in a large country. USAID, through the Housing Sector Reform Project, has built the sturdy foundation and partially completed the superstructure for housing sector reform in the Russian Federation. The Housing Sector Reform Program, executed over the six year period from September 1992 through September 1998, can be credited with driving the reform of a major sector of the Russian economy: the housing sector. This is no mean accomplishment, given that the famous Shatalin "500 days" report, prepared on the eve of the transition rated the housing sector as the least efficient sector in the Soviet Union. By the conclusion of the contract the majority of housing units were privately owned; most enterprises have divested their housing to municipalities and now have greater concentration for their principal work; household mobility rates had soared, and the majority of families are finding their housing through market means rather than waiting on the municipal waiting list; broad rent controls had been replaced with a program that is gradually raising rents to full cost recovery levels and targetting the remaining subsidies on low income people; and most construction is organized by private developers and carried out by private contractors. The present report is about HSRP II, the second phase of the overall effort. HSRP I and II overlapped for most of two years and during the second year of this period were operated as a single project. Like its predecessor, it continued to focus on reform in the housing sector per se. But there were significant shifts in emphasis and some additions. Most importantly, reform of municipally provided communal services--particularly water and wastewater services and district heat systems--were awarded much greater prominence, attention consistent with their large share of total housing expenses of tenants. Attention of was given to working with banks to initiate lending for construction period finance for the first time. And a small grants program for local NGOs was added to encourage the development of citizens and local groups in pressing for further housing reforms, including formation of condominium associations. HSRP II also embodied a philosophy of concentrating the program's effort on target cities, whose success could then be used as a model for other cities. This strategy proved less compelling in practice than expected and after the first year a more flexible approach was pursued. The change put great stress on project services being demanded by client cities and banks. This approach worked extremely well, although progress in some clients was on something of a start-and-go basis. HSRP II's principal accomplishments can be summarized as follows: -- dramatically extending the range of municipalities assisted with reforms through the operation of four "Regional Centers" covering the four corners of Russia in the second program year and through working with fourteen widely scattered pilot cities selected by Minstroi in the third year; the project's aggressive seminar and presentation program reached more than 14,000 attendees at events in 54 cities; -- pioneering practical work with municipal communal service providers and their regulators on an improved regulatory system and tariff setting practices; -- creating the first practical vehicles for middle term finance of municipal infrastructure using bank loans and bond financing; this work also assisted in the creation of Russia's first credit rating agency at the Institute for Urban Economics; 4 -- providing critical assistance to the Ministries of Construction, Finance, and Economy in the development of a large number of new laws, Government Resolutions, and Presidential Decrees; and -- being a very strong partner to the Russian government in the creation of the Agency for Mortgage Lending--a secondary mortgage facility--whose operations should sharply extend the volume of mortgage lending by private commercial banks by addressing their liquidity concerns. The project succeeded in fulfilling the great majority of the ambitious goals set for it by USAID. Overall, 85 percent of the 130 goals specified in the successive workplans were achieved. (In this accounting, if a goal involved succeeding in a number of cities or banks, each city or bank was treated as a separate goal; so, the project may have succeeded in having five of six client cities raise rents to a certain standard level.) Where goals were not achieved, it was nearly universally due to local or national governments not taking some necessary action. Perhaps the project's most significant result was fostering the creation and development of the Institute for Urban Economics, a non profit think tank founded by the senior Russian consultants of the Urban Institute in November 1995. In its short life IUE has become the recognized leader in Russia on housing and communal reform issues. HSRP helped IUE put strong project management and financial management systems in place and to diversify its activities and client base. The most notable of its diversification results was the creation of Russia's first credit rating agency within IUE. A sign of the quality of its work is that the agency signed a strategic alliance agreement with Standard and Poor's in August 1998. IUE has built a firm foundation and is ready to continue to advance reform in the sector. Compared with the situation in 1991 and the inherited Soviet system for housing and communal services, extraordinary progress has been made. Nevertheless, a great deal remains to be done. The devolution of responsibility for many housing policy decisions to local governments (when ownership of the State housing stock was transferred to them) means that the national government's role is limited substantially to passing enabling laws and providing leadership. The reform movement consistently has consistently obtained the necessary national level support. But the battle for reform will ultimately be won or lost at the local level. Reaching out to local governments and regional banks is a process that must be continued. Demonstration projects and advice will remain the principal tools in the years ahead to promote -- reform in communal services regulation, management, finance and tariff setting, -- further increases in rents in municipal housing and redefinition to add capital costs and differentiate rents by quality and location of individual units, and correspondingly strengthen the housing allowance programs, -- and expansion of the use of competitions to select firms to maintain and management housing, -- a much higher incidence of condominium creation and of local housing NGOs, and -- an expansion in the incidence and volume of mortgage and commercial real estate lending among regional banks. 5 PART I OVERVIEW 6 1. Introduction The Basic Charge The Housing Sector Reform Project II (HSRP II) was a three year project which became effective at the end of September 1995. It was designed to build on the strong progress made in reforming Russia's housing sector, with USAID-assistance under the predecessor contract, HSRP I, which had a five year 1 activity span from September 1992 through August 1997. Because of the broad progress made by the time HSRP II was designed, it was possible for USAID to select a targeted approach to the incremental assistance. This is supported by the summary statement in the contract: The HSRP II is planned as a 3 year activity...to assist Russian municipalities and enterprises in privatizing housing assets and developing construction and infrastructure financing methods, thereby assisting the government of the Russian Federation in achieving its goal of privatizing new housing construction and developing a prosperous, market-based housing sector. More specifically, the contract enumerated five areas in which work was to be concentrated: -- housing finance -- including both mortgage finance and funding for rehabilitation of buildings owned by condominium associations -- construction period finance -- infrastructure for municipalities -- including both financing improvements and extensions and increasing efficiency of the operations of municipal utilities -- enterprise housing divestiture -- housing and urban land market reform. The contract also stated that project activity should include a small grants program to support grassroots NGOs working in the housing sector. Further the contract enunciated the strategy that work in these areas during the first contract year should be concentrated in four municipalities and oblasts so that the impact of the technical assistance would be maximized and these localities could serve as models for other cities and regions. The target localities in the first year were the municipalities of Moscow and Ryazan and the Oblasts of Vladimir and Nizhni Novgorod. Moreover, the contract stated that USAID expected three levels of results from the work undertaken: -- direct results in each substantive area -- basis for replication: successful models and procedures in each area for further application within the original and new oblast and municipalities -- human resources: training Russian personnel and institutions capable of continuing without 1 Work under this project is described in R. Struyk, "Housing Sector Reform Project I: Final Report." Washington, DC: The Urban Institute, 1997. 7 expatriate assistance. The first two year of HSRP II overlapped with the last two of HSRP I. Since the Urban Institute was the contractor on both projects fully integration of work under both projects was accomplished. Indeed, after the first year of HSRP II, USAID determined it would more effective for the two projects to be administered together and a combined workplan was developed for 1996-1997. For this year many of the performance indicators for the two projects are joint. Shifts in USAID Priorities Over the three year life of HSRP II, USAID has used the resources of the contract to respond flexibly to changes in the Russian housing market, the directions of reform pursued by national and local governments, and the initiatives of other donors. The result was some shift in activities from year to year and the strategy for delivering the technical assistance. A graphic display of the location of the main activities is shown in Figure 1.1. A summary of the project's work year-by-year is given in Figure 1.2. A good example of changes in program direction concerns mortgage finance. The initial charge was to work with banks in the four target locations to initiate mortgage and construction period finance. While this was accomplished, it was also clear that banks in many locations were interested in initiating such lending, if they could obtain badly needed assistance. So the program was shifted to be demand-driven by banks and not tied to specific locations, although the housing finance team always pursued leads in priority cities. By the fall of 1997, the necessity for special work with banks in either area had declined, since the project had succeeded helping more than 30 banks in all parts of the country begin such lending. In this circumstance, work in the mortgage sector continued by providing assistance to Russia's nascent secondary market institution, the Agency for Housing Mortgage Lending. When the HSRP II contract was signed, the Agency, of course, had not yet existed. There were also broad changes in the work with regional and municipal governments on housing sector reform. (See Table 1.1.) After the first year the wisdom of concentrating on working with housing divested by enterprises in a few locations seemed questionable because of the low response of tenants to the possibility of forming condominium associations. In this case the shift was to broad the geographic scope of the team's activity by creating Regional Centers in four points distant from Moscow. Also during this year USAID decided that HSRP could support the World Bank's Enterprise Housing Divestiture Project operating in six cities. The Regional Centers concept worked extremely well, but in the third contract year a combination of lower funding and the Government of Russia's priority for the team to work with fourteen "pilot reform cities" prevailed. Table 1.1 Enterprise Housing Divestiture and Assistance with Local Housing Reform--Shifting Emphasis within HSRP II year direction 1995-1996 Divestiture is the focus; activity concentrated in municipalities of Moscow and Ryazan, and regions of Vladimir and Nizhni Novgorod 1996-1997 Promotion of housing reform by local governments is priority. Regional Centers established in Vladivostok (Far East), Irkusk (Siberia), Rostov-on-Don (South), and St. Petersburg (Far North). Assistance initiated to six cities included in the World Bank's Enterprise Housing 8 year direction Divestiture Project. 1997-1998 Promotion of housing reform by local governments is priority. Priority given to 14 "pilot reform cities" selected by the Government of Russia. Assistance continued to six cities included in the World Bank's Enterprise Housing Divestiture Project. One implications of these shifts is that the performance indicators specified in the contract were replaced with different indicators stated in the project's annual workplans which have been approved by USAID. 2 The balance of this report details the work carried out under HSRP II. Chapter 2, the final chapter in Part I, provides an overview of project accomplishments by reviewing the performance indicators, and other measures of project activity and success. Part II then gives in-depth discussion of five selected project activities, ranging from assistance to the Agency for Housing Mortgage Lending to project work in promoting housing reform in the regions. Each chapter describes the assistance provided and the results effected. Part III then addresses two final topics: the project's accomplishments in institutionalization and what remains to be done in terms of sector reform. A set of annexes complete the record by giving comprehensive lists of reports produced by the project, seminars sponsored and participated in, names of study visit participants, and press coverage of the project. Overall, the Housing Sector Reform Project has had an enormous impact on one of the least efficient sectors of the Russian economy. The full record of change is extensively and is comprehensively 3 described elsewhere. Suffice for now to say that the sector has moved broadly to a market base with some very important improvements in efficiency achieved. At the same time, possible efficiency gains likely equivalent to 1 or 2 percent of GDP remain to be harvested. The opportunities are particularly acute in the communal services sector where both increased finance for investment and improved municipal regulation and tariff setting would result in very large increases in efficiency--and consumer satisfaction. Continued improvement in residential property maintenance and management is another primary target. 2 The description covers only the HSRP II "core contract." At the same time this contract was signed a companion "requirements" contract was also signed. Under it four task orders were eventually issued for work on: zoning, commercial real estate lending, stimulating economic development in the Oblast of Novgorod through real estate reform, and disseminating the results of a series of USAID-supported pilot projects in real estate reform to Russian professionals. 3 R. Struyk (ed.) Restructuring Russia's Housing Sector, 1991-1997. Washington, DC: The Urban Institute. 9 2. Summary of Accomplishments The principal work of HSRP was working with local counterparts in drafting legislation at the national or local level and working with local officials and bankers to implement actual reforms, initially on a demonstration basis and later on a more mass scale. This chapter reviews the record from a series of different perspectives: the USAID-defined performance indicators, the number of seminars and courses held, the number of papers produced and disseminated, and number of Russians who visited the U.S. under program auspices to learn new ways of operating. Performance Indicators USAID contracts routinely include concrete indicators of a project's expected accomplishments. And HSRP II is no exception. However, even in the first year those specified in the contract were modified in the workplan in light of changes in Russian policies and developments in housing reform, particularly the extent of the divestiture of housing assets by enterprises, that had occurred between when the RFP was written and the contract came into effect. Each of the three workplans prepared during the project included a set of indicators for the performance period covered by the plan. Table 2.1 provides a comprehensive listing of the indicators and statements on the extent to which each was accomplished. The table is organized by topic. So the first part of the table shows the performance indicators for "Enterprise Divestiture and Work in the Regions" for all years. Recall that the indicators for 1996-1997 are for the combined HSRP I & II program. If indicators were defined separately for each year, then three sets of indicators appear under the heading. Table 2.2 provides an overall summary of the project's record. Note that in this accounting, where a goal or indicator was defined for multiple cities, this was defined as multiple goals. For example, if the project was to encourage rent reform (increases) in five cities during a year and three cities actually reached the goal, then in the accounting in Table 2.2 this is recorded meeting three of five indicators. Overall, the project's record is very strong. It met 111 of the 130 goals defined (85 percent). Where goals were not met, it was generally because a city administration or Federal Agency could not be induced to undertake a reform. Some examples will illustrate this point: o In the area of supporting enterprise divestiture and supporting housing reform in the regions, in 1997-1998, the goals called for inducing the 18 pilot cities to keep to the fairly aggressive federal standards for rent increases. Obviously, rent increases are a highly political matter, and it might be considered surprising that the goal was achieved in as many as 13 of the 18 cities. o The Agency for Mortgage Lending did not purchase its first mortgage until September 1998, several months later than the date set in the goal for it. The delay was caused primarily by extended negotiations with the Ministry of Finance and Appartus of Government about the government's contribution to the Agency's equity. Most important, however, is that the Agency did commence operations. The project was particularly proficient in the areas of institutionalization and administering the small grants program. Its record is also very strong in working with Russian officials to enact the necesary legislation underpining reforms. 10 Table 2.1 USAID/Urban Institute-Russian Federation Housing Sector Reform Project II Indicators of Program Impact/Success Area: Enterprise Divestiture & Supporting Housing Reform in the Regions goals results 1995-1996 1. promotional materials for unit privatization in former enterprise housing will have been developed and implemented; accomplished 2. establish a minimum of five condominium associations in former enterprise housing in each target location; accomplished in 2 of 4 cities: Nizhni Novgorod (10 of 45 total), Ryazan (6 of 38), Vladimir (0 of 11), Moscow (2 of 36) 3. competitively let contracts will have been issued for maintenance and management services; accomplished 4. training and support to private maintenance and management firms and condominium associations as stimulated by the divested housing units is being provided by qualified local institutions. accomplished in 2 cities; accomplished in other 2 by 12/96 was 1996-1997 1. Saint Petersburg -- Condominiums registered: 20 or more Goal met. -- Maintenance competitions held: 2 1 held; goal not met/ 4 -- Condominium training: 1 Board of directors:2 Management: 2 only one training for managers held; goal not met Nizhny Novgorod, Vladimir, Ryazan -- Condominiums registered: 10 or more in each city. Goal met. -- Maintenance competitions held: 2 or more in each city Goal met. -- Condominium training: Board of directors:2 Management: 2 4 Goal met. Second training was done within the next two months. 11 3. Regional Centers (4 Centers; goals for each) -- Condominiums registered: 5 or more in each of three cities in the region covered by the Center. Goal met in all regions. -- Maintenance competitions held: 1 or more in each of three cities covered by the Center (Irkutsk exluded)/ -- Condominium Training: Board of directors:2 Management: 2 Goal met in 2 of 3 regions. Goal met where more then condominiums were registered. 25 1997-1998 -- 14 pilot & EHDP cities A. All Cities 1. Rent reforms: implement the payment scheme in Government Resolution N.707 and approximately keep pace with GOR standards on rent increases B. Advanced Cities: Nizhni Novgorod, Novgorod, Yaroslavl, Petrozavodsk, Cherepovets, Samara, Novocherkassk, St. Petersburg, Vladimir, 5 Ryazan, Volhov, Orenburg 1. a minimum 30% increase in the number of condominiums to achieve critical momentum in the formation of such associations to improve housing management and strengthen democratic grass root organizations 2. expand competitive maintenance to cover an additional 5% of the municipal housing stock C. Goal met by 13 of 18 cities. Goal met by 10 of 12 cities. Goal met by 6 of 12 cities. Second-tier cities: Tobolsk, Kazan, Ulyanovsk, Nalchick, Magadan, Kansk 1. create necessary local normative base and create 2 new condominiums Goal met for 5 of 6 cities. 2. create "customer service" and hold at least one competition to select maintenance firm Goal met for 4 of 6 cities. 3. preparation of a normative document to guide the city's housing reform program. Goal met for 5 of 6 cities. 5 Some cities are not in the "advanced" category in all aspects of housing reform. For the specific areas where reform has lagged in the city progress will be measured against the standard cited for "second tier" cities. 12 For the Moscow management initiative: Successful operation of the contractor during the year and acceptance by the City Goal accomplished: competitively selected contractor took over 30,000 units July 1, 1998; model being replicated. 13 Area: Mortgage and Construction Period Finance goals results 1995-1996 Assistance to banks 1. a standardized set of documents for construction lending procedures and appropriate construction lending instruments should be available for dissemination; accomplished 2. procedures are in place and staff trained at 5 banks to initiated construction loans and at 10 banks to initiate mortgage loans; accomplished 3. at least one institution offering a course in construction lending training. accomplished: Institute for Urban Economics Assistance to developers 4. One institution or professional association offering a course on construction finance lending; accomplished: Russian Guild of Realtors 5. A "How to” manual for construction finance loan applications developed for use by developers; accomplished 6. Six projects prepared and loan applications submitted to interested banks. accomplished: 9 submitted 1996-1997 Mortgage finance 1. 1 or 2 banks initiating mortgage lending added in each regional center not previously served by the project accomplished 2. IUE develops enhanced housing finance training programs accomplished 3. A full cycle of courses offered in the Certified Mortgage Lending Program accomplished 4. not accomplished Two banks making pilot building 6 6 Such lending was successfully initiated in a USAID supported project conducted by the Cooperative Housing Foundation in Tver. The project had the distinct advantage of having inexpensive funds to offer to banks making such loans. At one 14 rehabilitation loans to condo associations Construction period finance 1. Five banks making loans; banks will be from both Moscow and the regions accomplished 2. Dissemination of information through Russian Society of Appraisers & other appraisal and bank organizations accomplished 1997-1998 Creation of the Agency for Mortgage Lending: The Agency will purchase its first loans by the spring 1998 and issue its first securities by the summer of 1998. Not accomplished; first loan purchased in September, and the securities issue is expected in November/ Area: Infrastructure Finance and Regulation goals results 1995-1996 Assistance to municipalities 1. pilot projects regarding local activities to be subject to long-term financing and tariff reform specified and analyzed in each of six municipalities; accomplished 2. long-term financing mechanisms for pilot projects identified and agreed to by two municipalities; agreements with three cities: Nizhni Novgorod, Pskov, and Sudogda Raion (Vladimirskaya Oblast) 3. tariff reform packages discussed in at least two municipalities. discussed with 5 cities but cities expressed little interest Assistance to developers 4. one institution offering a course or segment on alternative approaches to private sector segment of course; Guild of Realtors point it appeared that CHF would be able to use its funds for loans in one of the HSRP cities, but this turned out not to be possible. 15 participation in infrastructure finance; 5. Case studies and training materials and a section of a "how to" manual covering publicprivate partnerships. accomplished 1996-1997 1. municipal projects analyzed in 2-3 cities accomplished 2.publications disseminated on: legal aspects of taxation of municipal bonds; guidelines on longterm infrastructure finance; and, "how to" manual on long-term finance infrastructure projects accomplished 1997-1998 1. At least 4 cities will have developed financially feasible infrastructure projects, with private sector participation and identified market mechanisms to finance such projects. 2. New procedures for analyzing and deciding upon tariff requests from municipal water and heat utilities implemented in at least two cities. Nizhny Novgorod (Ozonation station) Volgograd (Heating station) Dzerzhjinsky (Water purification) Gus-Khrustalny Uglich Nadym Area: Housing and Land Policy goals results 1. development of specific legal and regulatory documents in support of market-oriented privatization of shelter development process; accomplished: numerous national and local level laws and regulations enacted 2. creation and dissemination of model documents or regulations for adoption by other local authorities throughout Russia. accomplished: model land lease agreement; mortgage documentation; condominium charter, acts dealing with condominium registration, transfer of buildings to balance of building, continuation of subsidies. 1995-1996 1996-1997 1. Passage of the Urban Planning Codex by the summer of 1997 accomplished 2. Establishment of the Agency for Mortgage Lending by January 1997 accomplished: legal basis created in August 1996; Agency registered as an open joint stock company in September 1997 16 1997-1998 (life of project) Policy, laws and regulations regarding land tenure, property transfer, urban planning and zoning, infrastructure development and shelter will have been formulated, debated and/or adopted at the national or local level as may be appropriate. accomplished Area: Institutionalization goals results training courses related to activities at the initial project sites are available. generally accomplished. Courses on mortgage, construction period, and infrastructure finance, implementation of maintenance competitions and creation of condominiums offered by national organizations. Courses on training of managers for condominiums available in 2 cities at end of first year; in all cities 3 months later. 1995-1996 1996-1997 1. Russian staff capable of continuing all of previous year's activities accomplished 2. Training courses related to activities in additional project sites available accomplished 3. Training to build capacity for a team of Russian staff/ organization able to extend this program to other geographic regions is available 1997-1998 accomplished Year-on-year 100 percent increase in IUE funding from sources other than contracts with the Urban Institute accomplished Area: Small Grants Program goals results 1995-1996 17 None defined. 1996-1997 1. Complete second round of small grants program accomplished 2. transfer basic organization accomplished; IUE administration to local 1997-1998 Successful competition for 3rd round of grants accomplished Table 2.2 Summary of Accomplishments in Meeting the Performance Standards area total goals goals achieved Enterprise divestiture & supporting housing 7 reform in the regions 89 68 Mortgage and construction period finance 13 11 Infrastructure finance and regulation 15 14 Housing and land policy 5 5 Institutionalization 5 5 Small grants program 3 3 130 111 Overall 7 Each goal for each city is counted as a separate goal. 18 Other Measures This section briefly reviews four further indicators of the project's productivity: (1) the number of reports, guidelines, etc. produced, (2) the number of seminars in which the team participated or organized, (3) the creation of a home page by the Institute for Urban Economics, and (4) the number of study visits organized by the team or with its cooperation. The first three items were key elements in the project's dissemination strategy. In all cases, we review activities through May 1997 when funding from the HSRP I contract was essentially exhausted. Documents produced. The project placed a premium on two areas which led to a substantial volume of documents being produced by the project: detailed monitoring of the developments in the sector and evaluation of the early implementation of selected reforms; and the aggressive dissemination throughout Russia of guidelines, handbooks and other documents to promote reform. 8 Table 2.3 gives a summary of the documents produced. A full listing appears in Annex B. Table 2.3 Summary Tabulation of Documents Produced by HSRP II subject or type of document number produced legal and policy development 8 guidelines and handbooks for local officials, bankers, real estate professionals; courses 28 sector monitoring, evaluation and analyses 18 principal administrative documents 3 total 57 Different documents within a category were targeted to different audiences. Among the sector monitoring reports, for example, were those aimed at informing housing officials of progress of reforms (e.g., the regular reports on the extent of rent increases in different jurisdictions), a series of studies on changes in the operation of the housing market, aimed at the senior policymakers and their advisers, and several longer monographs geared to informing both Russian policy researchers and U.S. and other consultants working on sector reforms. Altogether the project printed and distributed about 250,000 copies of these documents. Typically, the format was simple and reproduction inexpensive: over the life of the project most printed documents cost less than 50 cents. The most effective distribution vehicle was providing seminar and conference participants packets of documents on the relevant topic. But other distribution schemes were also utilized. Trade associations, such as the Union of Russian Cities (Land Section) or the Association of Russian Commercial Banks requested copies of certain publications for distribution to their members. In the case of a few handbooks--such as the one on administering housing allowances--Minstroi requested sufficient copies for all major local governments in the country as well as regional governments. 8 In the annex, HSRP I documents are those assigned the project number 6306, the internal Urban Institute project number. 19 During the last half of the project, HSRP employed a full-time Russian public relations officer to help organize the printing and distribution of these documents. Seminars and courses. The project believed it essential to explain in person housing reforms to housing and real estate professionals and local officials to the maximum degree permitted by the available staff resources. The term "seminar" covers several types of presentation: the project providing a speaker to a conference organized by others, a seminar or conference in which HSRP was a principal organizer, or actual training courses, often of several days duration. A cardinal principle of the project was to organize seminars with Russian organizations--mostly local or regional governments, national ministries and trade associations. The benefits were assistance with the logistics of conference organization and a commitment to attracting participants. Importantly, Russian staff carried almost the whole burden of making the presentations. Summary statistics on project seminars are presented in Table 2.4 (details are in Annex A∗ ). The data attest to the fact that the project ran a high volume, varied seminar operation. Over the life of the project, there was approximately one seminar every week. Seminars were held throughout Russia, as suggested by the maps presented in chapter one; and, the project worked with a wide range of cosponsors to generate interest in the events and reduce its work burden. Table 2.4 Summary Data on Project Seminars category number total number of seminars 186 total number of participants 14,630 54 total number of different cities in which seminars were held Home Page. In the spring of 1996, within its first year of existence, the Institute for Urban Economics established a home page on the internet (www.furbin.ru). Initially, it provided only basic information about the Institute and its publications. Over time, however, the contents--especially of the Russian language version--have been expanded to include a list of upcoming seminars, a current list of new project reports, a set of ordinances adopted by local governments necessary for the implementation of housing reforms (selected by the HSRP team as good examples), and the first sub-Federal bond credit ratings prepared by IUE. The ordinances can be downloaded and readily edited by local governments. The availability of these resources on the home page is advertized in materials distributed at seminars and in a special insert in the Institute's Annual Report. Not many local governments have direct access to the internet. So in some sense the home page is a bit ahead of its time. On the other hand, many local governments have access to an institution--typically a research institute or university--that is connected to the internet. Hence, use is possible. The Institute is monitoring utilization so it can make informed decisions about the amount of resources to devote to this vehicle in the future. Currently there are about ten visitors to the site per day. Study visits outside of Russia. Study visits can be an important ingredient in the technical assistance mix. The project used these visits for two principal purposes. One was to give a concrete illustration of certain innovations where examples were utterly lacking in Russia. Examples in this ∗ HSRP II events begin in September 1995 20 category include early visits on mortgage lending to the U.S., a later visit to Hungary to see how the "dual rate mortgage” was being administered by the OTP Bank, and visits to the U.S. on the development of housing codes. The other was to supplement the education of bankers and officials who had already received some training through HSRP in Russia. Table 2.5 gives the basic statistics on the use of study visits within HSRP II. There were fewer study tours during HSRP II than during the previous project, owing in part to the reduced need to demonstrate new practices for the first time--examples were now available in Russia--and in part because of lower funding from sources other than HSRP itself. As the table shows, training was concentrated in the finance area where construction period finance and secondary mortgage facilities were completely 9 new topics . Table 2.5 Summary Data on Study Tours statistic number number of study tours 11 study visits by subject area -- finance a -- housing maintenance and management -- legislation development -- other 7 1 1 2 number of participants 66 number of cities from which participants were drawn 6 number of different visit/course organizers 5 a. Includes condominiums. 9 Details are provided in Annex C. HSRP II tours are from September 1995. 21 PART II PRINCIPAL ACTIVITIES 22 3. Development of National Legislation The primary stage of establishing a legislative basis for housing reform implementation from 1992 to 1995 saw elaboration and adoption of the Russian Federation Laws “On Fundamentals of Federal Housing Policy,” “On Privatization of the Housing Stock in the Russian Federation,” and the first part of the Civil Code of the Russian Federation. These created a legal foundation for the acquisition of privately owned housing. However, the problems of managing the common property of multi-family blocks under several housing owners, establishing a system of real estate rights registration for all real estate rights and encumbrances, and providing all participants in the real estate market with information necessary for its effective functioning still existed. In addition, legal relations under mortgage lending were not adequately covered under legislation. The legislative foundation necessary for the transition to market-based relations and successful reform of the housing sector was mostly created from October 1995 to October 1998. It closed the abovementioned legislation gaps and was consistent with the legislative development initiated already in 1992. The activity of the HSRP team in the development of legislation was focused on key components. The following federal laws were developed with its direct participation: - “On Homeowner Associations”; - “On State Registration of Real Estate Rights and Deals with Real Estate”; - “On Mortgage (Real Estate Pledge)”; - “On Making Changes and Additions to the Russian Federation Law ‘On Fundamentals of the Federal Housing Policy’”; - Housing Code of the Russian Federation; - “On Making Changes and Additions to the ‘Housing Code of the RSFSR’”; In addition IUE participated in development other federal laws regulating legal relations in the housing sphere: - “On Allocation of Housing Subsidies between the Regions of the Far North and Areas with Status Similar to Them in 1996”; - “On Making Changes to the Russian Federation Law ‘On Value Added Tax’” and suggestions to the Tax Code Draft (in part related with setting up a fair taxation environment for independent housing maintenance organizations (including private); - “On Making Changes and Additions to the Russian Federation Law ‘On Housing Stock Privatization in the Russian Federation.’” This chapter gives an overview of legislative accomplishments at the national level and the project’s involvement in them. Legislative Overview A full list of legal acts is provided in Table 3.1 at the end of chapter. 10 Of the enumerated 10 The project also produced a summary of relevant laws on housing and real estate each six months. The final edition is S.Butler, “Summary of Laws and Other Legal Acts on Housing and Real Estate in the Russian Federation.” Moscow: Urban Institute Technical Cooperation Office, 1998 23 legislative acts, the laws “On State Registration of Real Property Rights and Deals with Real Estate,” “On Housing Owner Associations,” “On Making Changes and Additions to the Russian Federation Law ‘On Fundamentals of the Federal Housing Policy,’” and “Allocation of Housing Subsidies between the Regions of the Far North and Areas with Status Similar to Them in 1996” were adopted and enacted. The federal law “On Mortgage (Real Estate Pledge)” was passed by the Russian Federation State Duma on 24.06.97 and turned down by the President of the Russian Federation on 27.07.97. The President’s veto was finally overridden in July 1998. The federal draft law “On Making Changes and Additions to the ‘Housing Code of the RSFSR’” is going through a preparatory stage and will be discussed in the first State Duma hearing. It incorporates a new revision of the Code, adopted in 1984, with a number of provisions from the project of a new RF Housing Code developed by the Institute. The most important addendum is the restriction on access to free social housing to certain population categories. This provision could be incorporated in a separate piece of legislation, not waiting until the comprehensive new Housing Code is elaborated. Collaterally, in the nearest future, the work on the new Housing Code of the Russian Federation will be resumed (it was halted in 1996 pursuant to a decision by the Russian Federation Government). The Federal law “On Making Changes and Additions to the Russian Federation Law ‘On Housing Stock Privatization in the Russian Federation’” is also being reviewed by a conciliatory commission of the Federal Assembly and the President of the Russian Federation. Project Role The HSRP team took part in preparing the abovementioned legislative acts and of a whole number of decrees by the President of the Russian Federation, resolutions by the Government of the Russian Federation, and federal programs and normative acts by the Gosstroy of Russia. The documents that the team helped to prepare included the following: The federal law “On Home Owner Associations” replaced the Interim Provisions on Condominiums approved by presidential decree as of 23.12.93 #2275. By incorporating a number of standards from the Interim Provisions the law complemented and widely extended them. The law described the methods of condominium management, rights of ownership to the premises and common condominium property, rights and duties of association members, procedure of organizing homeowner associations and their activities, procedure of association registration, defined the purposes for which association-owned property could be pledged as loan security, envisaged preservation of subsidy payments for maintenance of the condominium buildings and described in more detail the rights and duties of the association in property management and procedure of association liquidation. As a result of the HSRP team’s participation in development of the Law’s provisions, a resolution was passed by the Russian Federation Government “On Approval of Provisions ‘On Determination of the Size and Conditions of Land Plot Borders in Condominiums’” as of 26.09.97 #1223 that established the order of determining the size and borders of land plots conveyed to or leased out to householders or Homeowner Associations. Drafts were also prepared of the Model Charter of the Homeowner Association based on the Law and Resolutions by the Russian Federation Government, wherein the Gosstroy of Russia is given responsibility for development and approval of a single form for registration certificates for house ownership and their release. Executive bodies of the Russian Federation’s subjects and local authorities were given responsibility for provision of conditions for reregistering and coordinating the constituent documents of the real estate owner associations with the law “On Homeowner Associations.” To further implementation, the Gosstroy of Russia prepared and issued Orders #17-20 “On Approval of a Tentative Contract for Servicing Common Condominium Property” and #17-21 “On Approval of a Tentative 24 Contract on Targeted Budget Financing of Homeowner Associations” both of 23.05.97, #17-142 “On Approval of Recommendations for Homeowner Associations on Establishing Accounting and Bookkeeping” as of 14.07.97. Those documents were also elaborated with the Institute’s participation. The federal law of 21.07.97 #122-FZ “On State Registration of Real Estate Rights and Deals with Real Estate” laid down that pursuant to the law on state registration of rights to real estate origination, limitation (encumbrance), conveyance or termination will be put into effect throughout the whole territory of the Russian Federation in accordance with the system of records in the Unified State Register of Real Estate Rights by justice institutions. The law establishes that state registration is the only proof of a registered right, determining the open character of information on state registration and order of its receipt, and determining the order of real estate rights registration. The law determined the specific character of state registration of separate kinds of real estate rights like rights to enterprises, property complex, real estate rights in condominiums, common ownership rights, rights to newly created real estate, lease rights, servitudes, mortgages, trust management, and other rights. The federal law “On Mortgage (Real Estate Pledge)” lays down more comprehensive requirements for mortgage contracts and order of their registration, defines secured mortgage claims, introduces institution of a pledge attesting the rights of a pledgee on a secured mortgage commitment and on a mortgage contract and not requiring a notarial certificate in case rights on it are conveyed, stipulates the consequences of recovery against pledged property on previous mortgage contracts, leases, servitudes, right to using the premises by the family of the owner, establishes the order of recovery against pledged property and its implementation, defines grounds which give a pledgee a right to claim advanced fulfillment of the secured mortgage commitment, determines the order of transfer of pledged property rights to other persons and encumbrance of this property with the rights of other persons and regulates the subsequent mortgage. The law set that in the case of recovery against pledged housing, the pledger and his family are obliged to vacate the premises on condition that the housing was pledged on mortgage contract to secure payment of the loan given for its acquisition or construction and the family of the pledger had given a notarized certified commitment to vacate the pledged premises in case of recovery against it before the mortgage contract was signed. The work in this field continued to result in the development and adoption of the Russian Federation Government’s Provisions of 26.08.96 #1010 “On the Agency for Housing Mortgage Lending” that determined the terms and order of establishing the Agency - a specialized secondary mortgage market institution. The federal law of 21.04.97 #68-FZ “On Making Changes and Additions to the Russian Federation Law ‘On Fundamentals of the Federal Housing Policy’” incorporated changes and additions aimed at matching the concepts and provisions of the Law “On Fundamentals of the Federal Housing Policy” with the Federal Law “On Homeowner Associations.” The federal law as of 17.08.96 #116-FZ “On Allocation of Housing Subsidies Between the Regions of the Far North in 1996” specified the procedures for allocation of 1996 federal budget funds for granting housing subsidies to the citizens leaving the regions of the Far North for regions with favorable climates. The law prescribes the use of up-front subsidies to the citizens for housing construction and acquisition; and it specified the amount of subsidies as well as loan terms and procedures of granting them. In addition, the concept of housing subsidies for construction and acquisition of housing was developed in the following normative documents prepared with active Institute involvement: - Decree by the President of the Russian Federation “On State Support of Citizens in Housing Construction and Acquisition” (adopted on 29.03.96 #430), establishing the mechanism for financial support of citizens in housing construction and acquisition with the help of budget funds through granting free subsidies; 25 - Resolution by the Russian Federation Government “On Granting Russian Federation Citizens in Need of Improved Housing Conditions a Free Subsidy for Housing Construction and Acquisition” (adopted on 03.08.96 #937), that set the procedures of granting citizens in need of improved housing conditions free subsidies for housing acquisition and construction. In addition, following an assignment by Gosstroy, the team developed “Recommendations on Development and Implementation of the Program for Granting Free Subsidies (Financial Assistance) for Housing Acquisition and Construction to the Citizens in Need of Improved Housing Conditions.” The Gosstroy forwarded the projects to the subjects of the Russian Federation. The project of the Russian Federation Housing Code was developed by the HSRP team at Gosstroy’s request as an alternative to the project developed by the Russian Ministry of Justice. The Housing Code envisages another form of state participation in improving housing conditions for its citizens. Unlike the official version, stipulating only provision of living accommodation to those needing improved housing conditions under social rent (naim) contracts, the Code has added provisions on assisting citizens to exercise their right to housing through a wide range of instruments which assume certain extents to citizens’ uses of market solutions (giving subsidies for housing construction and acquisition, free land plots for housing construction). It introduces differentiation of citizens according to their right to receive living accommodation under the social naim contract, describes the categories of citizens eligible to obtain housing under naim agreement based on provisions of article 40 of the Constitution. It lays down that a compulsory social naim contract must be signed and claims that its status is superior to that of a warrant. There is a more comprehensive description of the social contract contents, procedure of its signing, changing, canceling and recognizing its invalidity and description of procedures of giving housing accommodation under naim agreement. The HSRP team took the lead in developing a number of legal acts aimed at fostering competition in rendering housing services, regulating the system for utility payments and setting federal standards for the transition to the system. The following documents show positive results of a series of demonstration projects initiated by the Institute. 1. Presidential decree of 29.03.97 #432 “On Development of Competition in Rendering Services in Maintenance and Renovation of the State and Municipal Housing Stocks” recommended executive bodies of the Russian Federation’s subjects and local authorities divide in 1996 the functions of the customer and contractor in maintenance and renovation of the state and municipal housing stocks and transition to contractual relations between organizations performing these functions. 2. Resolutions by the Russian Federation Government of 13.06.96 #707 “On Regulating the System for Utility Payments” established the structure of resident payments for all forms of housing ownership and the procedure of granting compensations (subsidies) for utility payments to the citizens and gave local authorities a right to approve normatives on housing and communal service consumption and rates and tariffs on utility services. 3. The Resolution of 26.05.97 #621, “On Federal Standards of Transition to the New System of Utility Service Payments,” established federal standards of social housing space, the level of citizens’ payments, maximum allowed share of the citizens’ own expenses for utility payments in the aggregate family income, maximum monthly cost of rendered housing and communal services per one sq. m. of the total housing space, which will serve as a base for the annual assessment of the amount of financial assistance provided to the subjects of the Russian Federation from federal budget funds. 4. The Resolution by the Government of the Russian Federation “On Approval of the Federal Standards for Transition to the New System of Utility Services Payments for 1998” set federal standards for 1998 as well as the Procedure of Laying Down Federal Standards for Transition to the New System of Utility Payments and Amounts of Transfers, if the federal 26 standards and tariffs approved by the Federal Energy Commission of the Russian Federation are observed. The federal law “On Making Changes and Additions to the Russian Federation Law ‘On Housing Stock Privatization in the Russian Federation’” incorporates standards aimed at establishing additional social guarantees in housing privatization, enables the subjects of the Russian Federation to set terms of privatization completion and establishes the procedures, conditions and terms of housing accommodation in communal apartments, lays down the procedure of housing deprivatization and grounds to make one eligible for recurring privatization. The federal draft law “On Making Additions to the Russian Federation Law ‘On Value Added Tax’” and suggestions pertaining to the Tax Code Project put forward the idea of exempting the value added tax from housing payments, including rents under naim agreement in the State and Municipal Housing Stock, as well as maintenance fees for housing accommodation maintenance and renovation, common elements, adjacent territories by owners of the housing accommodation and itemized jobs on maintenance and renovation of the housing stock performed by contractor organizations under contract with customer organizations. This would give the same tax advantages to firms working under contracts with municipal organizations as those enjoyed by municipal departments. The Institute also took part in elaborating a number of federal programs such as: - federal targeted program “Your Own Home”; - federal program for demonopolization and development of competition on utility services market for 1998-1999; - federal targeted program “State Housing Certificates” (by decree of the President of the Russian Federation as of 28.01.98 #102, the program was given Presidential status); - state targeted “Program for Providing Servicemen and Interior Bodies’ Staff and their Families with Housing in 1998-2002”. To implement the program “State Housing Certificates” a package of normative documents was worked out: - Provisions on procedures of preparing and conducting the competition for choosing the General Manager of the Presidential Program “State Housing Certificates,” approved by order of the Gosstroy of Russia as of 25.02.97 #17-45; - Order by the Gosstroy of Russia as of 25.02.97 #17-45 “On Approval of the Commission for Conducting a Competition for Choosing the General Manager of the Presidential Program “State Housing Certificates”; - issue and redemption of state housing certificates given to servicemen, citizens dismissed from military service, and citizens subject to move from closed and isolated military settlements, approved by resolution of the Russian Federation Government as of 21.03.98 #320; - Resolution by the Government of the Russian Federation as of 21.03.98 #320 “On Measures for Implementation of the Presidential Program ‘State Housing Certificates’”; - Provisions on organizing the competition for selecting banks to participate in the federallytargeted program “State Housing Certificates “ of 27.03.98 # 15H, approved by order of the Ministry of Finance. The HSRP team took an active part in developing the Concepts of Housing and Utility Service Reform in the Russian Federation, approved by decree of the RF President #425 on 28.04.97. Continuing this activity, HSRP participated in preparing Presidential Decree #528, as of 27.05.97, “On Additional Measures on Utility Service Reform in the Russian Federation,” Resolution by the RF Government of 13.06.97 #702 “On Approving a List of Towns for Tuning the Mechanism of 27 Implementing Utility Service Reform,” draft of the RF Government Resolution “On Audit of Utility Service Tariffs,” Order by the Gosstroy of Russia #17-142 “On Approval of Tariff Audit Procedure in Organizations Rendering Utility Services” as of 29.12.97, normative and methodical materials on Implementation of the Concepts of Utility Service Reform in the Russian Federation (approved at the meeting of the interdepartmental board of the Council for Architecture, Construction, and Utilities on 29.05.97), draft of the Provisions on Procedure of Developing, Reviewing and Approving Utility Service Tariffs (to be approved via the Gosstroy Order). The Future While a great deal has been accomplished, the legal base is far from perfect. Priority tasks for the future include: - finalizing the Federal Draft law “On Making Changes and Additions to the ‘Housing Code of the RSFSR’” and submitting it for State Duma approval; - participating in elaboration of the new Housing Code of the Russian Federation; - taking part in developing the federal draft law “On Making Changes and Additions to the Federal Law “On Homeowner Associations” in the context of the Constitutional Court acknowledging the provisions of articles 32 and 49 of the Law not in accordance with the Constitution; - providing for further mortgage development, whereby it is necessary to work out a number of normative acts, including the draft of the resolution by the Russian Federation Government on Making State Guarantees on the Funds Attracted by the Agency for Housing Mortgage Lending to Refinance Long-Term Housing Mortgage Loans, Procedure and Conditions of Securing Return of Monetary Funds Given to the Agency for Housing Mortgage Lending with a View for Developing the System of Long-Term Housing Mortgage Lending to the Residents, Procedure of Registering Rights to Uncompleted Construction Objects and Deals with them; - developing Procedures for Transfer of Non-Housing Stock Owned by the State or Municipalities for Management of Homeowner Associations, Procedures of Granting Subsidies Envisaged by Law to Homeowner Associations and Compensations (Subsidies) and Benefits to Homeowners Living in Houses Managed by Homeowner Associations and a Tentative Procedure of Registration and Issue of Land Titles to Members of Homeowner Associations. Table 3.1 List of Legal Documents that were Developed with the Participation of the HSRP team in 1996- 1998 1. Federal Laws 1.1. Federal law of 15.06.96 #72-FZ “On Homeowner Associations.” 1.2. Federal law of 21.07.97 #122-FZ “On State Registration of Real Property Rights and Deals With It.” 1.3. Federal law of 26.06.97 #102-FZ “On Mortgage (Real Estate Pledge).” 1.4. Federal Law of 17.08.96 #116-FZ “On Allocation of Housing Subsidies between the Regions of the Far North and Areas with Status Similar to them in 1996.” 28 1.5. 1.6. (d) Federal Draft Law ”On Making Changes and Additions to the Russian Federation Law ‘On Housing Stock Privatization in the Russian Federation.’” 1.7. (d) Federal Draft Law “On Making Additions to the Russian Federation Law ‘On Value Added Tax.’” 1.8. (d) Draft of the Russian Federation Housing Code. 1.9. (d) Federal Draft Law “On Making Changes and Additions to the ‘Housing Code of the RSFSR.’” 1.10. (d) Draft of the Tax Code Project (provision 15 of point 2). 1.11. (d) St. Petersburg Draft Law “On Housing Policy in St. Petersburg.” 1.12. (d) Moscow Draft Law “The Housing Code of the City of Moscow.” 1.13. 2. (d) Federal Draft Law “On Making Changes and Additions to the Russian Federation Law ‘On Fundamentals of the Federal Housing Policy.’” (d) Recommended (Model) Draft Law “On Natural Local Monopolies.” Presidential Decrees 2.1. 2.2. Decree by the President of the Russian Federation as of 29.03.96 #431 “On the New Stage in Implementation of the State-Targeted Program “Zhilische” (See p.4.2). 2.3. Decree by the President of the Russian Federation as of 29.03.97 #432 “On Development of Competition in Rendering Services in Maintenance and Renovation of the State and Municipal Housing Stocks.” 2.4. Decree by the President of the Russian Federation as of 21.07.97 #425 “On Utility Service Reform in the Russian Federation.” 2.5. Decree by the President of the Russian Federation as of 27.05.97 #528 “On Additional Measures on Utility Services Reform in the Russian Federation.” 2.6. 3. Decree by the President of the Russian Federation as of 29.03.96 #430 “On State Support of Citizens in Housing Construction and Acquisition.” (d) Blueprint decree by the President of the Russian Federation “On Approval of a Model Charter for Homeowner Associations.” Resolutions of the Russian Federation Government 3.1. Provisions by the Russian Federation Government of 26.08.96 #1010 “On Agency for Housing Mortgage Lending.” 3.2. Resolution by the Russian Federation Government of 13.06.96 #707 “On Regulating the System for Utility Payments.” 3.3. Resolution by the Russian Federation Government of 27.06.97 #753 “On Federal Targeted Program ‘Your Own Home’ (See p.4.1). 3.4. Resolution by the Russian Federation Government of 03.08.96 #937 “On Granting Russian Federation Citizens in Need of Improved Housing Conditions a Free Subsidy for Housing Construction and Acquisition.” 3.5. Resolution by the Russian Federation Government of 26.05.97. #621 “On Federal Standards of Transition to the New System for Utility Payments.” 29 3.6. 3.7. Resolution by the Russian Federation Government of 26.09.97 #1223 “On Approval of Provisions ‘On Determination of the Size and Conditions of Land Plots’ Borders of Condominiums.” 3.8. Provisions by the Russian Federation Government as of 20.12.97 # 1613 “On the Program for Demonopolization and Development of Competition in the Utility Service Market” (See p.4.5). 3.9. Resolution of the Russian Federation Government of 20.01.98 #71 “On Federal Targeted Program ‘State Housing Certificates’ (See p.4.3). 3.10. Resolution of the Russian Federation Government of 30.05.98 #536 “On Approval of the Federal Standards