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equal to 2/3 of a statutory rate). While enterprises may decrease turnover tax payments by the amount of their social spending, they have a right to deduct full amount of the turnover tax paid (according to a statutory rate) in the process of calculating their profit tax obligations. From eleven cities considered for participating in the World Bank Enterprise Housing Divestiture project, eight confirmed that they have had this rule of double benefits.

There are other sources of financial support to enterprises in some cities. For example, municipalities sometimes declare social assets to be divested from enterprises, receive federal transfers to support these assets, and share these funds with enterprises, who actually retain the assets on their balance sheet. Such situations are possible, as we will argue below, because the term "divestiture" is still poorly determined by federal regulations.

It is worth noting that local authorities usually provide the above mentioned financial benefits not only to enterprises maintaining and operating social assets being kept on their balance sheets (therefore subject to divestiture), but also when the corresponding social assets had been included into the charter capital of privatized enterprises.

In some cases, federal and regional budget transfers are allocated directly to enterprises. In many rural settlements and one-enterprise towns, municipal governments still do not have adequate administrative capacity to manage corresponding assets. This is largely because in these places the largest firms were the historic providers of the bulk of social services. Due to this tradition, the enterprises, not municipalities, continue to receive subsidies from both federal and regional budgets and to run housing, schools, hospitals, kindergartens, etc. Governmental transfers for social purposes are the most significant in agriculture, coal, and defense industry sectors (See Annex 3).

# Attitude of local authorities.

In general, city officials are interested in delaying social asset divestiture for as long as possible. This is especially true with regard to housing and utilities. According to the survey, municipalities in about 60% of cases have attempted to delay or stop this process (Table 6). Nine enterprises out of ten that have not yet started divestiture negotiations, foresee that these negotiations would be very difficult because of certain conditions imposed by city administrations. As a short-term solution, local authorities often try to introduce agreements between enterprises and city administrations on joint use and financing of social assets. In practice this means that enterprises retain the whole financial and management responsibility for maintenance and operation of social assets, while the city contributes from time to time some funds if they are available (from federal transfers or from 1.5% turnover tax).

In some cases, though, local authorities are very keen to receive the full control over social assets in the city and to start developing and managing the city social infrastructure as a single system. They therefore insist on social assets divestiture even if it means an additional financial burden for the city.

It would be very interesting to find out whether there are any objective factors, besides personal inclinations, which influence the position of local authorities. According to experience in the Enterprise Housing Divestiture Project, cities dominated by one or several large enterprises are at both extremes. In such cities almost all the housing and other social assets used lo be controlled by enterprises and, as a result, local authorities were absolutely powerless and depended completely until recently for the delivery of many social services on investment decisions of enterprises. City administrations in these