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The findings are based on materials development in the project, "Improvement of the Social Service Delivery System in Russia," jointly implemented by the Urban Institute and the Institute for Urban Economics (IUE), Moscow. Work on this paper was supported by the U.S. Agency for International Development, Contract No. EEU-I-00-99-00015-00, Task Order 800. Opinions expressed are those of the authors and not necessarily those of USAID, the Institute for Urban Economics, or the Urban Institute. The authors thank Marina Liborakina at IUE and Burt Richman and Jerome Gallagher at UI for comments on a draft. They also are indebted to the many people in the four Russian pilot cities who cooperated so generously with this assessment.
Background
A decade after the initiation of the transition in Eastern Europe and the Soviet Union it is clear that the non profit sector has developed remarkably in many countries in the region. Progress is especially striking in Eastern Europe; on the other hand, development has been notably limited in most countries of the Commonwealth of Independent States (CIS) where liberal democracy has had little chance to take root.1 Kendell, Anheier, and Potucek (2000) give a useful summary of the challenging situation today:
Characteristic features [of nonprofit sector development] have included extensive evidence of intraregional diversity in terms of organizational resources and capabilities; policy turbulence, unpredictability and ambiguity in some countries, fuelled as many national and local governments have been either unwilling or unable to provide sustained political financial support (sometimes despite symbolic or rhetorical commitment); and the exertion of powerful influence by agencies from outside the region, including foundations and EU institutions. (p.103).
Nevertheless, the emergence of the non profit sector has been one of the principal hallmarks of the transition. But even in Central Europe where development has been most pronounced the sector remains on an infirm financial footing.
Another hallmark of the transition has been the devolution of responsibility for service delivery in many sectors from national to local governments.2 This has generally included the provision of social assistance and social services. Decentralization has been much greater for program administration and service delivery than for program design and funding. But funding responsibility has often shifted more in reality than stated in the law because of unfunded and underfunded national mandates.3 Examples of reformed programs that assign administration to local governments include the restructured child allowance programs in both Poland and Russia and the creation of housing allowances in a number of countries that permit phasing out rent controls in municipal housing (Struyk, 1996). Municipalities have some role in determining program parameters--e.g., in some countries the rate at which rents are increased in the housing allowance program--but program design is nonetheless substantially determined at the national level.
The decentralization and reorientation of government functions has required or will entail both the modification of existing local government agencies and the creation of new offices to administer programs transferred to localities, as well as some newly established programs. In Poland, for example, the decentralization of social assistance proceeded in two steps. In 1990 responsibility of many services were transferred to local governments. Then in 1999 additional services were transferred and this required the creation of new Family Assistance Centers in each of the country’s over 350 districts (Powiats) (Regulski, 1999, p. 44).
In the Russian Federation and most countries in the Commonwealth of Independent States, the transition period has witnessed the introduction of new social services by local governments to address such problems as care of noninstitutionalized disabled children, victims of domestic violence, and drug business. These programs have emerged as a result of a variety of pressures: to reduce reliance on institutionalization, to move away from forced treatment of those with alcohol and drug dependencies by the justice system, and to respond positively to the demands of the newly active nonprofit organizations (NPOs). While many of these services were pioneered by NPOs, local governments often created agencies to expand the scale of delivery. (In this paper we use the term "nonprofit organization" to mean non governmental and non profit organizations.)
For social services, local governments throughout the region often have the authority to determine how services will be delivered: through municipal agencies, contracting out to for-profit or nonprofit entities, or possibly grants to NPOs.
There is great potential for NPOs to be contractors to local governments for these services. Many NPOs are now engaged in the kind of counseling, special education and personal assistance service areas where local governments have the primary responsibility. In some countries in the region NPOs already receive grants from local governments to provide social services. But grants are more subject to budget cuts than the delivery of core services under contracts: at least in some cases the services provided through grants are viewed as supplemental and non essential. By delivering municipal social services NPOs could stabilize their financial base and still serve their communities.4 From the municipality’s perspective, compared to grants contracts permit greater accountability and a stricter definition of services to be provided. But this is only the case if contracts are well drawn and enforceable and monitoring is undertaken by the responsible local agency.
This paper presents a description and assessment of pioneering contracting efforts in three Russia cities during 2000-2001: Perm, Novgorod, and Tomsk.5 To provide essential contextual information the next two sections briefly review the overall record on the effectiveness of contracting out by local governments and the rationale for NPOs to be competitive in the market for providing such services. Following this the focus shifts first to the environment for the pilots and then to a comparative description of the experience with major elements of contracting out in the three cities—ranging from the experience in holding competitions through the actual delivery of services. The last major section reviews the strengths and weaknesses observed and lessons learned through this experience.
1. Anheier and Seibel (1998), Kuti (1999), Hyatt, Cooper and Knight (1998), Nowicki (2000), Quigley (2000).
2. Kirchner (1999); Wallich (1994); Bird, Ebel, and Wallich (1995); Freinkman, Treisman, and Titov (1999); Horvath (2000).
3. Wallich (1994); Freinkman, Treisman, and Titov (1999) for Russia. Note that underfunding by the Russian national government initially places the burden on regional governments (Subjects of the Federation). But the regions are able to vary their contributions to local governments' revenues through an elaborate set of negotiations. In the end, municipalities can end up bearing much of the burden of the national-level funding shortfalls. In general, underfunding occurs because of gaps in the coverage of national programs that have to be filled from local resources.
4. One must note, however, that acting as contractors has posed problems to some nonprofit in remaining true to their basic missions. See, for example, the discussion in Smith and Lipsky (1993) and Boris and Steuerle (1999).
5. A fourth city, Arzamas, participated in the project. It signed a contract with an NPO too late to be included in this assessment.
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