Ninety-two legal entities of the nine municipalities of the Samegrelo-Zemo Svaneti Region have increased the number of employees and their salaries in 2022 – the salaries of 8,406 people working in the non-entrepreneurial (non-commercial) legal entities (N(N)LEs) and limited liability companies (LLCs) – those already paid this year and to be paid until the end of the year – amount to GEL 52,237,836 in total, which is 24% of the total allocations of the budgets of the region’s municipalities.  

The present study brings together the information on N(N)LEs established by the municipalities of Zugdidi, Poti, Abasha, Martvili, Senaki, Khobi, Tsalenjikha, Chkhorotsku, and Mestia, as well as on only those LLCs that receive subsidies from local budgets. The reporting period includes the years 2020-2022.

Main findings:

• There are legal entities operating in the municipalities whose functions are duplicated with one another or with other agencies of state or local self-government bodies;
• In the management and administration of individual legal entities, an unreasonably large number of staffing positions has been created; 
• The majority of municipalities have created several N(N)LEs for the provision of one type of service, mainly in the areas of sports, education, and culture;
• The majority of the municipal LLCs operate with loss and depend on budget subsidies;
• In 2022, the number of employees of municipal legal entities has increased in all the municipalities of Samegrelo-Zemo Svaneti, except for Abasha;
• Whereas in 2020 the legal entities of nine municipalities of the region employed 7,798 people, in 2021 the number of employees increased to 8,216, and as of March 2022 – to 8,406;
• The year 2022 also saw increases of salaries; they increased the most – by 29% – in Senaki and the least – by 7% – in the Khobi Municipality;
• In 2020, the N(N)LEs and LLCs paid salaries in the amount of GEL 36,411,064, in 2021 their amount rose to GEL 41,100,298, and the total amount of salaries already paid and to be paid in 2022 exceeds last year’s figure by almost GEL 10 m and equals GEL 52,237,836;
• The Poti Municipality has established the most legal entities – 20, 18 N(N)LEs and 2 LLCs, with a total of 1,425 employees. The Poti Municipality also has one more legal entity – Computer-based Printing House LLC, although it operates independently, only with its own revenues;    
• The highest number of people – 2,628 – are employed in 13 legal entities of the Zugdidi Municipality, and the total remuneration to be given to them in 2022 amounts to GEL 19,397,087;
• The Abasha Municipality is the only one in which the number of employees of legal entities has decreased in 2022 – the N(N)LEs of Abasha had 645 employees in 2020 and 669 in 2021, while as of March 2022, their number had decreased to 619.  

Duplication of functions

• There are 2 N(N)LEs with identical functions in the Tsalenjikha Municipality: the Service of Cleaning and Improvements of the Tsalenjikha Municipality and the Service of Cleaning and Improvements of the City of Jvari. The former serves the City of Tsalenjikha and the villages of the Tsalenjikha Municipality, while the latter assists the City of Jvari in the Tsalenjikha Municipality in resolving issues of cleaning, outdoor lighting, water supply, etc. Both N(N)LEs employ 169 people, including more than 30 people employed in the administration. We believe that the Tsalenjikha Municipality can also provide the said services through a single N(N)LE and a smaller administration.
• Since 2019, 4 N(N)LEs have been operating in the area of arts and culture in the Poti Municipality. Prior to that, this service had been provided by one N(N)LE – the Arts Center of the Municipality of the City of Poti.
• The Poti Municipality is the only one which has established a separate N(N)LE for the purpose of maintenance of cemeteries. In all the other municipalities, this service is provided by legal entities working on municipal improvements. N(N)LE Center for Maintenance of the Cemeteries of Poti employs 14 people; of these, 4 people are grave-diggers, while 10 positions have been distributed among the director, deputy director, 2 heads of division, and specialists.
• In Poti, there is also a separate legal entity – the Central Park of Poti – whose main function is to maintain the park with an area of about 4 hectares. N(N)LE Service Center also has identical functions (“maintenance of squares, nursery, and greening division”). We think that the maintenance of the central park should also be the function of this N(N)LE.
• The Poti Municipality established N(N)LE Social Service Center of the Municipality of the City of Poti to provide the population with social and healthcare services. On the one hand, the Center’s functions are duplicated with those of the Poti City Hall, the Ministry of Justice, and the Ministry of Health, and, on the other hand, it is also possible to procure individual services through a tender. The shortcomings in the activities of the N(N)LE were also described in a report [1] of the State Audit Office, which was released in March 2022.
• There are 5 N(N)LEs in the Zugdidi Municipality which operate in the area of education and culture. Three of them – the Center for the Development of Arts and Culture, the Palace of Students and Youth, and the Association of Arts Schools – perform almost identical/related functions. The latter separated from the “Palace” from 2021 and formed as a separate legal entity. We believe that the municipality should adjudicate on the reorganization of these 3 N(N)LEs and transform them into one legal entity.
• With the aim of cleaning and improvements of the territory of the municipality, the Zugdidi City Hall established 2 N(N)LEs – Zugdidi Cleaning and Center for the Management of Improvements. As of March 2022, these N(N)LEs employed 858 people in total, while the total amount of their salaries amounts to GEL 7,136,068. It should be noted that in the other municipalities, both of these services are provided through a single N(N)LE. 

Large number of employees in the administrations of N(N)LEs 

• The director of Zugdidi Cleaning – a N(N)LE of Zugdidi – has 4 deputies, more than the mayors of Zugdidi and other municipalities of the Samegrelo-Zemo Svaneti Region. One of the deputies is the first deputy director, and the other three are deputy directors in the areas of transport, control and supervision, and introduction of modern technologies. There are also separate divisions of supervision and transport. The management unit of Zugdidi Cleaning employs 35 people in total, which is a considerably large bureaucratic apparatus for one legal entity.
• The administration of N(N)LE Center for the Management of Improvements of the Zugdidi Municipality employs 42 people, including the director, deputy director, 10 heads of division, and 6 deputy heads of division.   
• The administration of N(N)LE Center for the Management of Pre-school Education Establishments of the Zugdidi Municipality employs 51 people. Their aim is to manage 62 public kindergartens in Zugdidi, which, in their turn, also have their managers. The Education Service of the City Hall is also responsible for coordination of the activities of the kindergartens.                        
• The administration of Poti-based N(N)LE Association of Pre-school Education of the Self-governing City of Poti, whose function is the management of 15 public kindergartens in Poti, employs 24 people, including 3 deputy directors.
• Senaki-based N(N)LE Public Service Center of the Senaki Municipality employs 127 people in total, including 20 individuals in management, 13 of whom are employees of the administration and 7 are heads of various divisions.   

Municipal LLCs:

• The source of funding for Zugdidi Municipal Transport LLC is its own revenues, on the one hand, and a municipal subsidy, on the other hand, because the company’s revenues are not enough for full provision of the service. 
• Another company dependent on a municipal subsidy is Anaklia-Ganmukhuri Resorts LLC, which was created by the Zugdidi Municipality for preparing the coastline of Anaklia and Ganmukhuri for the tourism season. The development of tourism on this segment of the Black Sea coast largely depends on the activities of this company. Despite the fact that a number of assets have been transferred into the ownership of the limited liability company, due to ineffective management, the company’s own revenues are considerably less than the subsidy it receives. In the years 2020-2021, the company received a subsidy of GEL 1,632,700 from the local budget, while its own income only amounted to GEL 416,952. In 2022, the Zugdidi Municipality allocated GEL 780,000 from the budget to finance Anaklia-Ganmukhuri Resorts, while the company only planned to receive GEL 183,700 as its own income.
• From 3 limited liability companies of the Poti Municipality, only 1 – Computer-based Printing House LLC – operates with its own revenues. Poti Transport Company LLC and Center for Laboratory Research LLC receive subsidies from the local budget together with their own revenues, and the latter’s own revenues are more than the subsidy it receives. 
• The following companies find their own revenues insufficient and depend on municipal subsidies: Chkhortskali and Kimbati LLC (water supply company) and Chkhorotsku-Samegrelo LLC (football club) in the Chkhorotsku Municipality; Water Supply of the Khobi Municipality LLC and Cleaning and Lighting of Khobi LLC in the Khobi Municipality; and Senaki Information Center LLC in the Senaki Municipality.

Malpractice of nepotism in legal entities                                                                       

Unlike the procedure of appointment of civil servants, no competition is announced for the employment in municipal legal entities. Accordingly, the mayor of a municipality appoints the head of a N(N)LE or LLC at his/her sole discretion; the head of a N(N)LE also makes staffing decisions practically at his/her sole discretion. On the one hand, such practice does not make it possible to select a specialist with higher qualifications in a situation of free competition; on the other hand, it brings under doubt the correspondence of the qualifications of those employed without a competition and by a unilateral decision with the positions they hold and creates risks of nepotism and employment in budget-funded organizations on political grounds.

For example:  Davit Zhorzholiani, a brother of the Mayor of Mestia, Kapiton Zhorzholiani, holds the positio [2]n [2] of the Executive Director of N(N)LE Destination Management Organization of Svaneti Shan-Land. The Director [3] of N(N)LE Center for Pre-school Educational Establishments of Zugdidi, Khatuna Toloraia, is a sister of Edisher Toloraia, an MP from the Georgian Dream and the former Head of the Municipal Administration of Zugdidi. The declaration [4] of Temur Dundua, the Chairperson of the Commission on Issues of Property Management and Natural Resources at the Poti City Council, shows that his father, Tengiz Dundua, is the Head of Division at N(N)LE Center for Maintenance of the Cemeteries of Poti, while his spouse, Buta Natsvlishvili, is the Chief Specialist at N(N)LE Service Center of the Municipality of the City of Poti.

Conclusion and recommendations                                                                       

The Georgian authorities have put forward an initiative of a small government on several occasions. This, first of all, implies the contraction of the size of the state bureaucracy. But meanwhile, the expenses of municipal legal entities and the number of their employees keep increasing.

The local self-government bodies suffer from a shortage of funds for resolving infrastructural and social problems. For this reason, it’s inexpedient to increase expenses on such a large scale.

In the opinion of TI Georgia, the municipalities should take the following steps in the nearest future:

• Study the areas of activity whose proper performance urgently requires the existence of an LLC or N(N)LE. If there is no such necessity, they should purchase certain services by means of public procurement. This will decrease administrative expenses as well as save budget funds;
• Change the practice of management of municipal LLCs – entrepreneurial organizations should be oriented at getting a profit. The municipal LLCs should increase their own revenues, and local self-government bodies should decrease the amounts of subsidies. The municipalities should abolish those LLCs that do not have their own revenues at all or they should change their legal status – if they carry out an activity that is necessary for the functioning of the self-government body;
• Revise the existing practice and be guided by public interests, in order to improve the availability and quality of municipal services as much as possible in the conditions of effective management and a reasonable staffing policy;

• The municipalities should change the existing practice of selection of employees of legal entities and select the employees by a public competition whenever possible.