The number of legal entities established by the Kutaisi City Hall has increased from 20 to 22 in the last three years, which has resulted in a higher number of employees and budgetary allocation for their activities by the municipality.

According to the information requested by Transparency International Georgia, the Kutaisi City Hall spent GEL 18,423,973.36 on non-entrepreneurial (non-commercial) legal entities (N(N)LE) and limited liability companies (LLC) in 2017. In 2018, these expenses amounted to GEL 19,937,101.26, compared to GEL 5,831,839.22 in the first quarter of 2019. By the end of the year, the City Hall should spend more than GEL 23 million on legal entities.

This is data is incomplete as 1 out of the 22 legal entities established by the Kutaisi City Hall, the “Kutaisi Lift”, did not provide the requested public information. Moreover, according to the information that we received, two LLCs, "Ukimerioni" and "Gumati Medical Ambulatory", are no longer operational, and LLC "Parkservisi", LLC “Kutaisi Preventive Disinfection Station”, LLC “Kutaisi N4 Mixed Clinic” and LLC "Georgian Traditions 2011" are not subsidized from the budget. LLC “Parkingservice” received GEL 300,000 from the budget in 2015 and subsequently did not receive direct subsidies from the local budget, although the City Hall is not fully paying for the lease for “Parkservisi”. As of December 2018, this debt amounted to more than GEL 1,240,000, and according to the information provided by the City Hall, there is an ongoing process of deferring the accumulated debt.

Therefore, the information obtained by Transparency International Georgia concerns only 15 legal entities - the municipal organizations that have provided the requested information and are financed by the local budget.

Number of employees and remuneration in municipal legal entities:

As illustrated in the diagram above, the number of employees in legal entities has increased by 145 since 2017. Currently, 15 legal entities have 3894 employees.

According to the information provided by the Kutaisi City Hall, the municipal LLCs that are funded from the 2019 local budget are the LLC “Ramaz Shengelia Stadium”, LLC “Basketball Club Kutaisi 2010” and LLC “Football Club Kutaisi Martve”.

According to data of Q1 2019, N(N)LE Nursery Association has the most employees (1657) compared to other non-entrepreneurial legal entities.  Moreover, N(N)LE Nursery Association also has the highest amount spent on wages - 1,821,166 GEL, though it must be noted that the lowest average monthly salary per employee is in the Nursery Association - GEL 366.66. As of 2019, there are 37 municipal kindergartens in Kutaisi.

Of the municipal LLCs that provided us with information, the largest employer was the LLC “Kutaisi Football Club Martve” with a total of 30 employees. LLC “Basketball Club Kutaisi 2010” spends the most on remuneration.

Number and Expenses of Persons Employed in Legal Entities in Kutaisi as of Q1 2019

In the last three years the N(N)LE “Special Service” has been leading in expenses for road transport in the Kutaisi Municipality: in 2017 it spent GEL 263,596.6, in 2018 - GEL 265,895.9, and GEL 110,844 in the first quarter of 2019.

Business trips, mobile costs and representation expenses incurred by legal entities from January 2017 to March 2019 are as follows:

Conclusion and recommendations

On the one hand, the Georgian government has expressed an initiative for a small-scale government, which implies the reduction of the number of state bureaucracy. On the other hand, there is an increase in the number of N(N)LEs, state-owned LLCs and those employed in them.

Unlike the procedure of appointment of public servants, employment in N(N)LEs does not require the announcement of a competition. Accordingly, both the City Hall – when appointing heads of N(N)LEs – and the heads of N(N)LEs practically make recruitment-related decisions unilaterally, which does not make it possible to select specialists with higher qualifications for vacant positions in an environment of free competition.

Although the municipality spends 23 million GEL on the management of legal entities, it is failing to resolve problems related to public transport, social issues, and other municipal problems.

According to Transparency International Georgia, the Kutaisi City Hall, in parallel to the preparation of the draft Budget of 2020, should take the following steps:

• The Municipality should study the areas of activity the proper implementation of which requires the existence of an LLC or a N(N)LE and, in the case of such need, it should take steps to get certain services by means of a tender: This will both decrease administrative expenses and save budgetary funds;
• The Municipality should revise the existing practice and be guided by interests of the public, in order to improve the availability and quality of municipal services as much as possible with effective management and a reasonable recruitment policy;