Employees and Remuneration Expenses of Municipal N(N)LEs and LLCs

News | Research | FIGHTING CORRUPTION | Analysis | LOCAL GOVERNMENT 6 April 2021

In recent years, a number of studies have been conducted regarding the legal entities established by municipalities. The studies discussed various bureaucratic challenges faced by the entities. 


Through establishing Non-entrepreneurial Non-commercial Legal Entities (N(N)LEs) and Limited Liability Companies (LLCs) municipalities delegate important functions to the entities, including communal services, tourism and monument protection, sports and culture, preschool education etc. According to the Local Self-Government Code municipalities may, for the coordination of its activities, establish N(N)LEs. The head of the entity is appointed and dismissed by a governor/mayor. Determining the structure, staff list and salaries of the employees also falls within the mandate of the mayor and the head of the N(N)LE. Relevant legislation does not include clear regulations on the specifications and criteria to be used in the process, thus creating risks for the unsubstantiateduse of budgetary resources.


Conducting a full-fledged survey of municipal legal entities is significantly complicated by the lack of publicly available data. The e-portal created by the State Audit Office in 2017, was supposed to improve the access to this information, by providing annually updated quantitative information on municipal legal entities and their employees. Unfortunately, the process of publishing the information on the e-portal is significantly delayed. On multiple occasions, the data of numerous municipalities is not available on the website.


Unified statistical information on municipal N(N)LEs is not regularly produced. The latest similar data is available in the 2016 report of the State Audit Office – “Audit Checks of Municipal Budget Spending and Execution during 2014-2015”. It should be noted that the audit report identified a number of significant shortcomings. In particular, the lack of control mechanisms over the subsidies issued by the municipalities, the unjustified increase of the number of staff members employed at N(N)LEs and the cases of unjustified establishment of N(N)LEs themselves. Unfortunately, no updated data is available on the topic.


The practice of establishing municipal limited liability companies (LLCs) is similarly opaque and vague. The legal document regulating the area is the Law on Entrepreneurs. The law includes relevant provisions on the organizational arrangement of those enterprises in which the state owns more than 50% of the shares.  However, the legislation does not include any regulations, determining the grounds for establishing municipal LLCs and relevant necessary provisions.


In order to study the latest developments in the area, Institute for Development of Freedom of Information (IDFI) requested relevant information from 64 municipalities of Georgia, namely: the lists of LLCs and N(N)LEs established by the municipalities, the number of staff members employed at the entities and their annual salary funds during 2018-2020. In addition, IDFI requested the staff lists of LLCs and N(N)LEs as of 2020, indicating staff positions, number of staff members employed at each position and their remuneration. 


It should be noted that the information provided by the municipalities was often incomplete, which significantly complicated the process of comparison and analysis. The data for 2018 was obtained from 37 municipalities, 47 municipalities provided us with the data for 2019, while the data for 2020 were received from a total of 48 municipalities. As for the staff lists of legal entities, only 35 municipalities disclosed the information.


Main Findings


- Based on the data of 35 municipalities, the number of staff members employed at their N(N)LEs increases by 5% each year.


- The salary funds of the studied municipal N(N)LEs increases by approximately 14% each year. 


- There are under 1000 staff members employed at the N(N)LEs of Tsageri Municipality, while the total population of the municipality is 8,800.


- During 2019-2020 there were approximately 4,000 employees at the N(N)LEs of Kutaisi Municipality. This figure is twice as high compared to Rustavi Municipality.


- In 2020 the total budget of Tbilisi Municipality N(N)LEs equaled 263,296,876 GEL. There were 3,942 staff members employed at the N(N)LEs, the total salary expenses of which reached 30 million GEL. 


- The remuneration expenses of the 10 largest municipal enterprises studied (with the exception of Tbilisi) equaled 18,284,225  GEL  in 2019. Most of them do not make any profit and are subsidized from municipal budgets.


- The remuneration of accountants, administrators and procurement specialists at Tbilisi Municipality N(N)LEs is on average twice as high compared to the same position employees of other municipalities.


- All of the 12 highest-paid heads of the studied N(N)LEs are employed at the entities of Tbilisi Municipality, and their remuneration fluctuates from 3,000 to 6,000 GEL.




Based on the 2018-2020 data analysis, the number of employees at municipal N(N)LEs and LLCs, as well as relevant salary funds allocated from the state budget are consistently increasing.


The analysis of staff lists demonstrates that the remuneration levels considerably vary across municipalities, which is evident based on significant salary differences among those employed in similar positions. Various examples, when the number of those employed at municipal N(N)LEs is suspiciously high compared to the number of municipality population, may suggest the attempt to mobilize administrative resources.


The misbalance between the remuneration levels of those employed at municipal legal entities is particularly evident if we compare Tbilisi with the regions. The staff members with the highest salaries are employed in Tbilisi. The difference is often disproportional, taking into consideration the general remuneration levels of employees in the private sector. The remuneration policies of municipal N(N)LEs promote social inequality between the residents of the capital and the regions. 


Lack of publicly available information on municipal legal persons should also be highlighted among the main challenges identified by the analysis. Various municipalities disclosing incomplete data, use of different accounting methods and incohesive formats for disclosing data (lack of data provided in a machine-readable format) considerably hinder the process of conducting detailed analysis.  


Based on the findings of the research, IDFI finds that it is necessary to review the recruitment, remuneration and staffing policies of municipal legal entities and take effective steps for establishing a flexible and well-balanced bureaucratic system.


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The research was prepared within the grant for Good Governance for Georgia project from the global philanthropic organization, Luminate. The Institute for Development of Freedom of Information (IDFI) is responsible for the content of this document. Views expressed in therein do not reflect the position of Luminate.
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