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Land titling helps build local economies in Ukraine
The euphoria that followed the Orange Revolution in Ukraine appears to be fading as the country struggles to expand the economy and increase revenue streams.
Ukraine’s economic condition can be summarized like this: Last year Ukraine had economic growth of 12 percent. So far in 2005, the growth rate has fallen to 5 percent and inflation has swelled to 15 percent. Looking back, some of the economy’s decline can be attributed to how the old government saddled the country with some of the highest pensions anywhere, while the new government raised state wages by 57 percent.
The USAID-funded Ukraine Land Titling Initiative offers a remedy. The key, says Allan Slipher, ULTI Chief of Party, is legally secure ownership for Ukraine’s estimated 35 million properties and owners founded upon an open and transparent transaction and record keeping system. This opens an enormous and largely untapped asset base for investment, trade, credit, and local government finance of new infrastructure development.
Slipher added that the primary focus of ULTI is to open property and credit markets in Ukraine through simultaneous land privatization, development of land market legislation, and development of legally secure property and mortgage credit transaction systems. In developed market economies, trade and finance centered on property account for as much as half of GDP.
“The government of Ukraine is really dealing with the big businesses, while we are dealing mainly with many small businesses and regular people who want to own property,” says Slipher. “But the government supports our project fully and we work well together. This is the biggest titling effort in the history of Ukraine.”
Revenue streams are needed not only to bolster the economy, but for Ukraine’s local governments to provide essential services like fire and police departments, emergency medical care, education, roads, zoning and building permits, and water supply — all of which are lacking today.
Since the mid-1990s, Chemonics and USAID have designed and implemented a successful strategy to create that infrastructure — a land and property market in Ukraine.
Slipher points out that as the government searches for sources of revenue, potential revenue tied to the property tax base is underutilized. Ukraine is an enormous country with rich property resources, he says, that should be a primary engine of finance for private-sector growth and local government infrastructure development. Slipher and his team are not actively pushing a plan for property taxes to pick up the economy’s slack. Instead, ULTI has helped create that potential with an effective titling program by working closely with hundreds of supportive regional and local governments, citizens, and enterprises.
“If you have a local tax base, you can generate and keep the revenue at the local level and reduce central government subsidy and control,” ULTI Chief of Party Allan Slipher said. “We are looking to create local ownership by creating the privatization infrastructure. Right now we are in that very local privatization stage. When that’s complete, when people have their property, then the infrastructure will be in place.”
Generating property tax depends on ownership and boundary records, property characteristics and assessments, and a proper billing address. Once collected, revenue from property taxes can be used to fund construction and upgrades to government facilities and national infrastructure, which also provides jobs.
Overall, ULTI is engaged in a number of activities that test and improve laws and procedures for putting titles into the hands of people possessing the necessary legal documentation. The project has helped issue 15,547 urban land titles to private Ukrainian businesses and entrepreneurs. These land privatization transactions have helped the project generate $90 million in revenues for local budgets. The majority of the project’s work is in assisting rural citizens get proper titles for land. To date, ULTI has assisted the government in issuing more than 1,056,000 rural land titles to approximately 820,000 eligible citizens.
In rural areas, the project contracts with local survey firms to divide up large tracts of land previously used by collective farms and prepare land titles for rural citizens. In urban areas, project consultants help assess the value of land parcels, guide entrepreneurs and local officials through the privatization process, and produce title documents.
Certain legal and regulatory reforms championed by ULTI are also cutting transaction costs and empowering rural citizens to resolve property disputes legally.
The project has decreased the cost of getting a title by at least 65 percent by introducing a competitive bidding process, standardizing payment upon completion, and getting an independent agency to verify the title. In some instances, these efforts have shaved years off the titling process. Already, the reforms have saved $24 million for rural citizens eligible to receive land.
ULTI also established 25 legal-aid centers throughout the country. The centers have resolved 85 percent of their cases through settlement negotiations. Since the centers opened, they have handled about 96,000 cases. In addition, legal specialists helped draft three new laws protecting citizens’ rights to own land and seek compensation for disputes that can hold land deals hostage.
Besides being an important asset, Slipher argues that land ownership builds trust between citizens and their government. People naturally want to increase the value of land, he said, and so they become active in developing their investment.
Entrepreneurs will make new investments, sometimes by buying more property. These investments create jobs and generate municipal funds that pay for social infrastructure and public works. So when these wheels stop turning, the economy is affected in myriad ways and governments must scramble to make up the lost revenue.
Right now, the wheels on the revenue and investment trains have come to a screeching halt, in part because property owners are caught up in confusing privatization – and un-privatization – deals.
The government of Ukraine is exploring overturning as many as 3,000 privatization deals – including sale of Ukraine’s largest steel mill. Some of that will happen through the courts, and some enterprises may be recovered through a broad law now in the Parliament.
Even with the current situation, ULTI continues to make inroads. “This won’t affect us,” said Slipher. “We are a project for small property owners. The new government has sharply increased support for completion of the agricultural land reform where it was previously impeded. They’re also seeking to improve conditions for both local governments and small businesses.”
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