Local government purchase of social services from private entities: problems of administration and financing

Abstract

Introduction. Designing a competitive mechanism for public purchase of social services including those from private providers is indispensable for assuring the high quality of provided services and the reasonable use of budget funds. However, much as this task has been seen as an important and urgent and justified in program documents, only a miserable portion of public funds is being allocated to purchase of social services from private providers.

Purpose. The goal of our research is to determine the problems with the financial mechanism of purchasing social services from non-government providers that are faced by local governments in Ukraine.

Methods. In the process of preparing this article, the methods of data collection and systematization, abstraction, observation, analysis, and comparison were applied.

Results. Our study proves that a significant factor impeding the development of social services outsourcing is the mechanism of social services financing, in particular the practice of their valuation. Our findings revealed the following main problems with setting tariffs for social services that are publicly purchased from private providers: a tolerance for increasing costs of service providers; the inability to include income of service providers in tariff calculations; added complexity with access to the social services market for business entities under Simplified System of Taxation, Accounting and Reporting; lack of possibility to include Single Tax in the tariff, as it is only allowed to include VAT; and the application of different approaches to budgeting for social services sourced from non-governmental entities and the communal and governmental structures. It is also worth adding that the existing methodological guidelines on social services valuation are rather complicated to use. Thus, the flawed mechanism of private social service provider financing results in that only 171 out of 2 725 service providers, or 6.3% of the total, are legal entities under the private form of ownership. The mechanism of financing social services from local budgets could be improved by introducing fixed tariffs for social services with possibility of their adjustment by means of certain coefficients.

Discussion. In future research, it would be feasible to focus on elaborating a detailed conceptual framework for setting social services tariffs, validating their base component and identifying additional elements, as well as defining the scope of application for such a mechanism.