One of the important conditions for the development of local self-government system is its provision of correspondent financial recourses.
In this regard the special role is given to the state transfers allocated to municipalities by equalization principle.
The financial equalization is widely frustrated in many countries but the peculiarities of its calculation differ from country to country.
Since 1998 the Law on Financial Equalization has acted in Armenia, which more or less conformed, to the requirements of the new established system but it needed to be changed and advanced in the context of current development. Particularly, the calculation based only on the revenue ability of the municipalities and neglected their expenditure fea¬tures presents as the key omission of the mentioned law.
Communities Finance Officers Association (CFOA) bearing in mind the importance of the financial equalization system revision initiated the proposal, which aimed to develop new model of financial equalization. This initiative turned into the Project in the framework of the grant award No. 194-A-00-03-00106-00 financed by U.S. Agency for International Development (USAID/RSC/Budapest), under the Fiscal Decentralization Initiative (FDI).
Within the frameworks of the Project the Steering Committee was formed where the representatives from central government (Ministry of Territorial administration and Ministry of Economy and Finance), international organizations (UNDP, World Bank, OSI, USAID, etc) and CFOA were presented.
The Steering Committee professionally supported during all the duration of the proj¬ect, which was guaranteed the successful implementation of the project.
It is necessary to notice that the development of the new model implies thorough study if international experience. In this regard the representative of the most well-known think tanks (Center of Fiscal Policy, Moscow) Mrs. Olga Voroncova was selected as the Project external expert who professional advises and expertise in the project is also highly appreciative.
The expert team formed within the frameworks of the project is presented by the fol¬lowing professionals: Artusha Muradyan, Mkrtich (Sos) Gimishyan, David Tumanyan, Edgar Gazaryan, Seiran Markosyan, Robert Nersisyan and Karen Hovhannesyan.
The work has been done under the leadership of the Communities Finance Officers Association chairman Mr. Vahan Movsisyan.
As a result of the project the methodology for calculation of the equalization transfers and the Draft of the Law on Financial equalization of Armenia were developed.
According to the assessment received from different sources the presented model is respected as a harmonic mixture of international experience and features of Armenian system of local governance.