Dmitry Zemlyansky on assessing the effectiveness of government investments

The Ministry of Economy proposed to reconsider the approach to assessing the effectiveness of budget investments in construction and reconstruction. In a column for Kommersant, Dmitry Zemlyansky, director of the research center for spatial analysis and regional diagnostics of the Institute of Economics and Public Administration of the Russian Presidential Academy of National Economy and Public Administration, discusses the attempt to transition to systemic prioritization of expenses, its advantages in terms of flexibility of the approach and efficiency assessment, as well as the risks of the new methodology, for example, for manipulation by project initiators or not being included in the register of necessary projects.

Ministry of Economy prepared draft methodology for assessing the efficiency of using federal budget funds allocated for capital investments. The updated methodology should replace the current “temporary” methodology, which was in force in 2023. This process is part of the general track of transition from the annually approved FAIP to maintaining a register of capital investments made at the expense of the federal budget. Familiarization with the draft methodology suggests several shifts in determining the priorities of investments from the federal budget, which have been discussed a lot in recent years.

Firstly, the proposed methodology is a clear attempt to move towards systemic prioritization of expenses.

This has been discussed several times in recent years. In 2022, against the backdrop of a sharp increase in sanctions pressure and expected risks for the federal and regional budgets (which, by the way, did not materialize), the issue of revising the composition of projects financed with budget funds was raised. These concerns were reflected in a very flexible revision of the composition of regional projects implemented using infrastructure budget loans. Every year in the summer, discussions flare up about targeted or frontal cuts in federal budget spending.

The methodology proposes a unified approach for ranking projects, which is aimed not so much at cutting off according to some rigid bar (quantitative values ​​of the “cut-off point” have always been and will be the subject of heated debate), but at compiling a “waiting list” that will potentially leave room for projects with borderline effects can still receive funding.

Secondly, there is an attempt to solve the problem of more clearly linking projects and effects to each other.

Every time the implementation of any federal program is analyzed, questions arise about the impact of specific activities on achieving target indicators. As a result, not only experts speak about this, but also, for example, the Accounts Chamber. It is often impossible to determine whether specific activities actually influenced changes in indicators, or whether the general situation just happened that way.

Thirdly, the methodology allows for greater flexibility in conducting assessments. It contains relatively soft scoring options that eliminate the problems of real practice in implementing projects using budget funds. For example, in the temporary methodology, if a project is not included in the approved or agreed spatial planning scheme (STP), it automatically receives zero points. But in real practice, regions and municipalities either do not dare to include projects in territorial planning schemes until they have confidence in their implementation, or the schemes are filled with mythical projects that will not be implemented. Ultimately, STPs lose their value for long-term planning. In the updated methodology, if a project is not included in the territorial planning scheme, but zones with special conditions for the use of territories that impede construction are not established, then it does not “fly out” of the assessment, but only receives a reduced score (0.4).

This leaves a chance of receiving funding and gives regions and municipalities the opportunity not to change the STP for each initiative.

Fourthly, the draft methodology involves a transition from “process” indicators in favor of “resulting” indicators. In accordance with the draft methodology, a large role is no longer given to direct effects (square meters, places, kilometers), but to indirect resulting indicators (increased security, reduced morbidity, reduced concentration of harmful substances, reduced travel time for passengers).

There are several important methodological innovations in the project, some of which appeared earlier, but were finally formalized in this document. Among the key ones are the requirements for assessing accessibility indicators not at the time of filing an application, but at the time of the expected commissioning of the facility, that is, taking into account forecasts (demographics, forecast capacity as a result of the implementation of other projects). The country will be going through a downward demographic wave over the next few years. Relying on forecasts will avoid creating redundant objects.

Or the fact that the authors of the methodology see the creation (preservation) of jobs as one of the key end results. The devil, as always, is in the details.

In conditions of a sharp increase in personnel shortages and extremely low unemployment, setting a goal for job creation makes no sense. Therefore, the postscript “preservation” seems very interesting. Although the question remains about what to do with more productive projects that will lead to a reduction in the number of jobs without a loss in overall efficiency.

Naturally, the draft methodology does not solve all the issues. For example, it retains the criterion of compliance with industry standards (in particular, urban planning standards). Moreover, the criterion is strict: exceeded the standard by 10% – received zero points. In actual practice, most of the standards established by regions and municipalities are too low (otherwise there simply won’t be enough budget resources to implement their own powers). Before implementing large projects, local regulations will have to be changed…

There is a question about whether project applicants themselves will provide forecast data. Will the Ministry of Economy check these forecasts? Will unified methods for forecasting be developed? If not, then there is a great risk of manipulation on the part of project initiators. The actual application of the approach to converting the indicator of the area of ​​social facilities to capacity and the impact on the resulting indicators remains very uncertain.

In general, there are two significant “gaps” in the methodology that can be eliminated in the process of coordination and refinement.

First. What about renovation projects that do not lead to increased capacity? Are they no longer needed? Will they not be included in the register?

Second. What to do with the sectoral and territorial priorities laid down in the current strategic planning documents and other regulatory legal acts? For example, with projects in the Far East? Or with projects in agglomerations and rural areas? As is known, as part of the implementation of the Russian government initiative “Cities of Great Opportunities and the Revival of Small Forms of Settlement”, long-term plans for the development of agglomerations (overseen by the Ministry of Economy) and support settlements (overseen by the Ministry of Agriculture) are being developed. Will projects included in such plans be assessed before or after they are approved?

In any case, the proposed draft methodology looks very promising as an element of the transition to a systematic prioritization of the distribution of federal budget investments. Now all that remains is to wait for the final document to be approved (as you know, the path from start to finish can be thorny). Then it will be possible to see how it will be used to overcome regional and industry lobbies when distributing budget funds.