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buildings". Complaints for the same treatment were expressed by the respondents in the survey. The other conflicting issue is divestiture of enterprise housing maintenance units. Most of the enterprises have no problem with transferring employees from this unit to the municipality (divested maintenance units are usually included into existing municipal maintenance structures or reorganized into separate municipal enterprises), though employees themselves sometimes have different attitude, as mentioned above. The conflict is around the amount of assets (workshops, tools), which should be divested to municipalities along with housing. All these conflicts are quite sufficient to substantially delay the actual divestiture.

# **7. NECESSARY MEASURES TO ACCELERATE DIVESTITURE**

Divestiture is a very complicated and painful process involving a good deal of financial, logistical, and administrative issues. Simple solutions are here not appropriate. The solving of some aspects of the problem may simplify control over the process and can create additional incentives to push divestiture further: (i) Definition of divestiture should be legally clarified. Local authorities may have a right to conclude co-financing agreements with enterprises and leave certain functions for maintenance and operation of social assets with them. Such arrangements should not be considered as divestiture though. Divestiture means transferring not only the use rights but also financial and managerial responsibilities to municipalities. Only in these cases should cities be eligible for federal transfers and other forms of support allocated for this purpose.

(ii) An institutional framework to solve conflicts between local authorities and enterprises in the process of preparation and implementation of divestiture must be established. These problems should be probably solved on the regional level with the involvement, if necessary, of federal authorities but the existence of disagreements should not be used to delay divestiture forever.

(iii) The methods of estimation of the net fiscal consequences of divestiture should be improved to make the overall picture more transparent for local authorities, who often do not know how much extra funds they will receive as a result of elimination of local turnover and profit tax benefits. This also will help to improve accuracy of regional requests for the federal transfers filed with the Ministry of Finance.

The divestiture of enterprise social assets imposes additional financial and managerial pressures on local authorities. According to the survey of municipalities, which examined this problem with regard to housing divestiture, even the existing level of budget subsidies for the housing sector is considered as a serious or even unaffordable fiscal burden. According to city officials, if the housing divestiture would be completed and the cost recovery level remains unchanged, the share of the budget allotted to housing subsidies would have to increase significantly, perhaps double or triple. As mentioned above, such estimates are on average substantially biased upwards. This is, in particular, due to the underestimation of additional tax revenues associated with divestiture. More active policy reforms can potentially ease excessive budget pressures derived from existing housing subsidies. Two types of activities should be given top priority: (i) Increase in cost recovery. By the time of the survey, cost recovery in the housing sector of surveyed cities was between 4 and 16% (despite the fact that the cities had the legal right to have cost recovery of 20%). By early 1996, with the legal right to have 60% cost recovery, the general level amounted to