On regional finances, political power in Khakassia, and more
A look back on some of the issues shaping Russian politics over the past weeks.
Regional finances: another lean year for most
First of all, let’s look at Russian regional finances at the beginning of 2025 or (rather) at the end of November 2024, since this is the last moment for which granular statistics are publicly available (albeit the AKRA business rating agency has gained access to December 2024 data for their report commissioned by Vedomosti).
Regional budgets, the cumulative size of which in 2024 made up roughly half of the size of the federal budget, have two main sources of income: their share of personal income taxes (base rate) and corporate taxes (17 percent). They also draw income from smaller taxes and various federal transfers. The proportions, on the whole, have not changed much over the past years, as you can see from the below chart.
Of course the exact share of transfers and own incomes depends on the region itself, with some highly subsidized regions drawing 80% or more of their income from federal money. As regards expenditures: across the board, typically around 70% of regional expenditures go on education, health, social policy and housing (typically the smallest of the four).
Below are the statistics of the Finance Ministry showing the accumulation of regional fiscal incomes over 2023 and 2024. This includes occupied territories in Ukraine (which the more granular figures displayed later will not), and figures for the first two months of 2023 are skewed due to a tax reform that changed how receipts are collected. However, end-of-year bumps of PIT receipts and transfers are visible - as are comparatively lower corporate tax receipts in 2024 (after above-inflation growth in 2023).
Corporate tax receipts were 5.3% lower in nominal terms at the end of November 2024 than a year before. This is actually an improvement over September when the difference was 11%, and there are significant regional variations too: most notably, coal and metallurgical regions stand out negatively. But, factoring in inflation for this period (~9%) many regions are in the red, reflecting squeezed corporate earnings.
Federal transfers (grants, subsidies, subventions and other discretionary transfers) also declined in real terms across the country. The two brightest green regions on the map below are Orenburg, which experienced devastating floods in 2024, and Kursk, which was overrun by the Ukrainian army. Caveat: these figures may change substantially when December data becomes available, as the federal government usually pays out a larger amount of transfers at the end of the year.
In spite of the decline in corporate tax receipts and transfers, on the whole regional incomes did not decline. In total, they were 13.9% over 2023 levels at the end of November. This is mostly due to much higher PIT receipts, themselves a consequence of higher salaries and other payments. It needs to be stressed though that Moscow, which itself reported a 20% income growth in the first 11 months of the year, has a vastly outsized influence on these figures and less than half of regions experienced over-9% growth of incomes.
According to the 2025 federal budget, transfers to regions will decline even in nominal terms (although they may grow during the year as spending is revised). Proceeds from debt forgiveness, which the government wants regions to pour into development projects, will not, by itself, offset this decline. At the same time, receipts from corporate and personal income tax hikes adopted in 2024 will benefit the federal budget, all while there’s no indication that corporate profits will grow.
Meanwhile, regions will have to spend on new political priorities, such as improving fertility, but also keep returning war participants and their families happy, prices stable, spend more on repairing aging utility pipes, keep hiring recruits by setting higher signing bonuses and compete with the army and military industry for manpower to ensure public services are running. This will likely lead to more regions running deficits than in 2023-24, with some forced to introduce additional local taxes to fund these efforts (the Saratov Region will, for instance, collect a targeted surtax from restaurants that ostensibly offered this themselves). One can also deduce this from spending plans summarized by Stanimir Dobrev here - although these, too, can and will likely be revised during the year.
The risk is not that regions will go bankrupt en masse. After years of targeted debt replacement policies, most of their debt is now held by the federal treasury. Rather, the risk is that the execution of certain policies and the provision of certain services will get neglected and underfinanced as officials need to navigate conflicting priorities, resulting in local resentment the kind of which you can see in Kursk or Dagestan (and soon, I believe, in regions where the dominant industry is facing an acute crisis, such as Kemerovo).
House of cards in Khakassia
Readers of these dispatches will be familiar with the ongoing conflict over the governorship of Khakassia, the small, picturesque, coal-producing region in Southern Siberia that was one of the regions delivering United Russia a surprising electoral upset in the September 2018 gubernatorial elections, and the last remaining region, in which the unexpected winner of that year - communist governor Valentin Konovalov - is still standing, having successfully seen off a challenge in 2023 by Sergey Sokol, a Kremlin-backed deputy with “war participant” credentials, by succesffully rallying local elites, including some United Russia politicians, behind himself. The Kremlin did secure a partial victory in 2023, by obtaining a two-thirds supermajority in the regional parliament for United Russia by changing electoral rules, appointing Sokol head of the legislature, and forcing Konovalov to seek avenues of cooperation with the governing party.
The conflict, however, never stopped and its newest chapter has to do with budgetary subsidies to municipalities. Last year the regional legislature adopted a law depriving the governor of the right to suspend budgetary transfers to municipalities if they violate budget legislation (e.g. overspend). In future the regional assembly would have to approve such decisions, thus greatly reducing Konovalov's influence. The governor, predictably, vetoed the law. The deputies of United Russia theoretically have the votes to override this veto in February. However, Sokol still thought it necessary to ask municipal leaders - some of which command more authority - to "talk to their deputies about how to vote", suggesting that he's not entirely sure about the loyalty of each of his deputies, even considering that the deputies of the Liberal Democratic Party will likely vote with them. It is also telling that he was asking for an open roll-call vote. Local political rumors suggested that three or more United Russia deputies could vote against the veto.
Sokol’s allies have been trying to highlight Khakassia's undoubtedly poor budgetary position (see further up), and that the regional budget’s deficit will amount to around 9% of the republic's own revenues this year. This of course is not fully irrelevant but it is beside the point, as Khakassia is not the only region with a difficult fiscal situation, and most of the circumstances are outside of the region’s control.
This conflict is about political control. For United Russia, adopting the law is important because while Putin can fire Konovalov at will (this has been especially easy since a 2021 reform of regional public administration), Sokol likely wants to know that a critical mass of local elites will fall in line and accept the decision if and when this happens, given the prior opposition of regional elites to the Kremlin and Sokol personally.
It is interesting, however, that both Konovalov and his opponents are appealing to federal regulation, with United Russia saying that because of the governor municipalities cannot fulfill their obligation to index the salaries of public employees, while Konovalov points out that the law curbing his powers would contradict the Finance Ministry’s position on how regions should relate to municipal finances. It is worth mentioning that weakening the governor's powers vis-a-vis municipal heads also runs counter to the stated objectives of the wider municipal self-governance reform currently discussed in the Duma (but not yet adopted), which would, on the contrary, increase powers over municipalities and local elites.
The developments thus do not only show that competitive politics and intense bargaining are still present in some Russian regions, even in 2025, but also highlight some contradictions between the Kremlin’s stated plans to run the federation and how it is actually run.
Also-happeneds
No mayor for Kurgan: In February the city of Kurgan will attempt to elect a new mayor for the fourth time since early 2024 when Elena Sitnikova who previously held the position resigned due to her arrest in connection with corruption and negligence affecting wildfire defense. Previously, Dmitry Zhukovsky, a United Russia deputy of the city duma seemed to be the favorite to win the procedure, which sees candidates selected by a “competition council” and then voted in by city council deputies, but both times that he was running, the election eventually had to be called off because one or both of the candidates who made it into the final round, withdrew from the process. In the third processed, launched in January, Zhukovsky did not even participate. While the reasons are not entirely clear, the inability of local officials to elect a capable and loyal mayor for more than a year highlights the growing difficulties associated with recruiting municipal leaders in the current circumstances. Mayors of second and third-tier cities often have little political and financial authority, but are expected to be political shields for governors by acting as first responders to residents’ problems and assuming political responsibility for failed policies. As scholars have also pointed out, mayors also face a high risk of arrest, especially as security services are gaining influence in domestic politics and mayors can be seen by governors as potential rivals.
Golubev not out of the woods yet: Another notable corruption case associated with recent personnel reshuffles, as also highlighted on this blog, is the case of former Rostov governor Vasily Golubev who in November managed to secure a seat in the Federation Council (and thus parliamentary immunity) seemingly to avoid prosecution for alleged wrongdoing that could be related to transit development or the city’s 2018 FIFA World Cup projects. On January 22 the Prosecution reportedly asked the upper chamber to suspend the former governor’s immunity. This has not happened yet, however, a couple of days later Rostov’s mayor, Alexey Logvinenko, whose name also came up in relation with the case, resigned. It will be interesting to see how this case develops; arresting people in connection with one of Russia’s largest prestige projects over the past decade can easily open up a can of worms.
New shiny dashboards: As a pilot project, twenty-nine regions will get "governor's dashboards", allowing key statistics and progress towards benchmarks to be displayed on what sounds like a big screen that, according to the description of its developers, will allow regional leaders to close their proliferating browser tabs (if only there were a similar one for researchers!). The dashboards, several years in the making, sound similar to the one serving mostly decorative purposes at the federal government’s Coordination Council. Along with several other federal efforts from the past years targeting data collection and aggregation, the thinking seems to be that if human data collectors and local aggregators - who can manipulate data - can be sidelined, governance will be both more efficient and truer to the guidelines set by the Kremlin.
Gubernatorial PR at wartime: Alexander Khinshtein, the former journalist, ultraconservative Duma deputy and National Guard associate who was appointed to head the Kursk Region in an unusual and seemingly emergency move last year, has had a bumpy start. Residents of the region’s districts affected by the incursion of the Ukrainian army have continued protesting over the past weeks, as many of them have still not received housing certificates promised by the federal and regional governments or these certificates turned out to be inadequate. Apart from setting up a “Coordination Council” to address the issue, Khinshtein could not really say anything encouraging to the protesters and received a treatment quite similar to his predecessor, Alexey Smirnov. Khinshtein has tried to score points with other, mostly symbolic, decisions, such as personally inspecting the results of the regional government’s efforts to cap prices (and concluding that they were unsuccessful, leading to the resignation of his deputy), or banning officials from spending their vacation abroad after local media discovered that the region’s minister for culture had gone to India. However, at least while the situation of refugees is not settled, the PR value of these moves will be questionable, and they are not likely to make it easier for Khinshtein to work with incumbent officials.