A first look at the Treasury’s data on regional budget execution in the first quarter of 2026 and what this means for regional finances; an explanation of why the dismissal of Vyacheslav Gladkov is likely watched and thought over by other governors and regional officials; and a selection of assorted news from the regions from May 2026, which did not make the Bear Market Brief cut.

Regional budgets: the troubles continue

Treasury data on regional budgets in the first 3 months of 2026 was published this week. It suggests that the ongoing squeeze on regional finances, which started in 2025, has only intensified at the beginning of this year. 

The crux of the budgetary crisis continues to be corporate income tax receipts, one of the three most important income sources of regional budgets. Most regions recorded lower corporate income tax receipts even in nominal terms than a year earlier, continuing the trend that began last year. The below is a comparison of CIT receipts in Q1 2026 vs Q1 2025 in nonconsolidated regional budgets (without the inclusion of local finances). 

The regions that did increase receipts are overwhelmingly Far Eastern regions benefiting from Russia’s pivot to Asian markets and resource extraction; North Caucasian regions where corporate income tax receipts have been historically low; resource exporting regions that received a tax adjustment in the first quarter; and, most importantly, regions with a direct connection to the defense industrial complex benefiting from the advance financing of the state defense order. At the same time, regions relying on commodity exports lost a considerable part of their receipts, as did several regions relying on industries such as metallurgy and petrochemicals.

One can say that the picture is mixed. Regions with the largest gaps between their incomes and expenditures in the first three months of the year include several that struggled last year already and had no reserves: the Kemerovo Region (a coal industry hub), the Vologda Region (whose dominant industry is steelmaking) as well as the Irkutsk and Novosibirsk Regions; and, newly, several oil and gas producing regions (e.g. Komi, Sakhalin and the Khanty-Mansi Autonomous District). Overall, however, nominal CIT receipts in (83) regional budgets in the first quarter were 11.6% lower than a year prior and for industries such as coal and metallurgy, there seems to be no easy way out of the crisis, even as in the first quarter, eastbound coal export transhipment grew somewhat. Regions relying on these industries are facing income shortfalls and, eventually, cuts to their budget. 

For many regions, the overall picture with own revenues is better only because personal income tax receipts are still 15% higher than last year. Even so, in aggregate terms there is virtually zero nominal growth of own regional revenues on last year, which means a contraction in real terms. Federal transfers don’t change the picture either. Moreover, personal income tax growth is concentrated in about two dozen regions, including, mostly, Russia’s largest cities and regions benefiting from defense orders, further underlining the bifurcation between these regions and others relying on civilian production.

Many regions are cutting spending on housing and utilities, in spite of the issue’s political relevance and the federal government’s debt forgiveness program that aims to incentivize such projects. Growth in spending on housing and utilities in the first quarter was driven almost entirely by Moscow and St. Petersburg along with a couple of peripheral regions that are experiencing a boom from the Asian trade pivot and the government’s efforts to develop the Arctic. Spending under the “National Economy” and “Health Care” headings has declined by more than 8% in nominal terms, and even social policy payments – the single largest expenditure item – is declining in real, if not nominal, terms. Debt servicing costs, meanwhile, while still relatively low when compared to the main areas of regional spending, are growing steeply: overall by 147% over last year. This spending is also concentrated in a handful of regions: those that drew down large commercial credit facilities in 2025 as their budgets suffered shortfalls and the federal government was reluctant to increase transfers, including Kemerovo, Irkutsk, Novosibirsk and Nizhny Novgorod. Financial experts expect regions to keep taking out loans from the market this year. 

As I outline in a fresh piece for the University of Bremen’s Russland-Analysen – building on my earlier series of articles for Riddle – this is important because it suggests that the deficit problem in regional finances is not temporary, but structural, and it will take more than a temporary upswing in the Russian economy to remedy it, especially if the engine of the upswing is solely either military production or the oil and gas industry.

Solutions proposed so far by the federal government and regional financiers, ranging from debt forgiveness to slightly expanding regional tax bases, do not have the scale and the depth to address these problems, while cash injections from the federal government’s own funds only keep regions running chronic deficits on a lifeline. Nor would a quicker loosening of monetary policy, which business leaders seem to want, do the trick, as the federal government would almost certainly try to capture surplus revenues. Even the end of the war would not constitute a silver bullet, as it would not diminish long-term draws on federal and regional finances such as the expenditures associated with rebuilding of the military, heightened social obligations or the erosion of property rights that discourage investments. Solving the issue would need a major overhaul of the system of incentives and accountabilities that underlie regional budgeting, and equip regions to focus on crisis prevention, rather than constant crisis management. 

Takeaways from the spring “gubernatoropad”

Two governors of regions sharing a border with Ukraine – Belgorod’s Vyacheslav Gladkov and Bryansk’s Alexander Bogomaz – were removed from their posts (officially resigned) in May, so far putting an end to the spring “gubernatoropad”, or “season of falling governors”, when the Presidential Administration reshuffles regional leadership ahead of elections scheduled for September. This year also saw the de facto dismissal of Dagestan chief Sergey Melikov, shortly before Gladkov and Bogomaz. Melikov was dismissed because of his mismanagement of the republic’s many crises, while in the two border regions, as in the Kursk Region last year, corruption investigations connected to the construction of defensive fortifications played a role, officially, with subordinates of both outgoing governors, including their deputies, implicated.

Despite weeks of prior speculation, Gladkov’s ouster is notable because he had excelled by the Kremlin’s own previously stated or implied standards for governors. He attempted to uproot the patronage networks left by his predecessor, Yevgeny Savchenko who managed the region for almost 30 years, and as the leader of a region directly exposed to the war, he had come to cultivate a reputation as one of Russia’s most communicative and genuinely popular governors. It was reportedly exactly his aspiration to popular legitimacy that put him on collision course with the federal government and especially the increasingly influential security elite, as it prompted him to behave bolder and more independently vis-a-vis the federal center; most recently, in his public resistance to mobile internet shutdowns and the proposed federal ban on Telegram. Gladkov justified his position in practical terms, arguing that unfettered communication was essential to warn residents about shelling and drone strikes. 

Whether it was this conflict or the corruption investigations around the defensive fortifications that ultimately decided that Gladkov would need to go, the case is a textbook example of how the changes in political priorities and power relations dictated by the logic of the war are upsetting the prior system of Russia’s personnel politics. 

Between the mid-2010s and the war, the Presidential Administration’s main objective was to build a training and cadre rotation system to uniformize and professionalize regional leadership, in order to replace local officials representing or beholden to local business interests, or worse still, public legitimacy, with interchangeable enforcers who would professionally manage the region without actually ruling it. For officials, the promise was, ultimately, an appointment to a cushioned federal position after a couple of years spent in the provinces, as long as they kept meeting key performance indicators and met the Kremlin’s expectations.

As the full-scale war increasingly forced its own logic on domestic politics after 2022, this changed (as I outlined in a report for FPRI last year). Due to the federal government’s increasing risk avoidance domestically, avenues of promotion got clogged. Paranoia over domestic stability as the war required increasing unplanned diversions of funds allowed the security services to expand their domestic reach. Lionizing war participants and the war itself became an important way of signaling loyalty, and the Kremlin increasingly had to treat the war as an entry ticket to a new, privileged group of elites and make space for them. Service in the occupied territories was introduced as a new, parallel fast track to receiving appointments in the regions, rendering the previous system less relevant. In a nod to regional stability, a number of local officials with a prior federal stint were also appointed, turning the original system on its head. To replace Gladkov, Putin appointed a career military officer with regional roots who has served in multiple Russian wars, including the current one (the new Bryansk governor likewise has ties to the war, having served as an occupation administrator, though he otherwise fits the mold of the standard technocratic appointee). In parallel, from 2024 on, as most regions started facing a financial crunch, governors’ duties multiplied, from keeping their residents safe and satisfied and regional economies humming, to spending more on social aid and recruitment. 

The corruption cases around the Kursk Region’s defensive fortifications, which ended up with one governor in prison and another found dead near his car – not to mention countless other criminal cases – demonstrated that a certain type of corruption, which the Kremlin regards as undermining the war effort, was going to be punished harshly, and officials were not safe from the security elite even if they receive their long-awaited federal appointments, although it is worth noting that after his dismissal, Bogomaz, one of the wealthiest governors in Russia, was appointed to the State Duma almost immediately, taking a seat freed up by United Russia list member Ayrat Farrakhov, albeit it seems that he will ultimately be unable to join the Committee on Agriculture due to a conflict of interest due to his agribusiness. 

Gladkov’s case, however, especially if it amounts to a career demotion (which we do not know yet, but there have been rumors about a pending appointment to the Russia-linked unrecognized statelet of Abkhazia to serve as envoy – a demotion, yes, but better than a prison term) represents another step in the collapse of the logic of the Kremlin’s personnel rotation system. As Olga Churakova pointed out in an excellent article on Gladkov in IStories, the case  leaves sitting governors without a legible map of what behavior is actually expected of them. This could push them toward seeking alternative guarantees of financial and professional security. 

As I point out for Delphi in an analysis of past month’s politics in Russia, underneath it all is the dawning recognition that another renegotiation of war timelines may be underway. The implicit expectation that Donald Trump’s return to the White House would deliver Russia a quick victory of sorts is eroding as Moscow appears to be holding out for more than is currently on the table, while also downplaying the domestic costs of doing so. This shift is already visible in military recruitment efforts. 

Also-happeneds

• Regional arrests continued over the past month and the focus still is on people in or adjacent to the defense industry as well as on second-grade regional officials. Three cases stood out to me. Alexander Gavrilov, CEO of the Krasnoyarsk defense enterprise Krasmash (a Roscosmos subsidiary who was standing for office in the United Russia party’s primaries), was arrested in late April 2026 on suspicion of accepting a bribe of 3 million rubles. The mayor of Ufa, the capital of Bashkortostan (mayors of regional seats have the de facto rank of deputy governor), Ratmir Mavliev was arrested by the Federal Security Service on charges of corruption – specifically, he is accused of facilitating the illegal transfer of a sanatorium land plot and extorting bribes from developers. Meanwhile, the case against Alexander Zyryanov, the CEO of the state-owned Novosibirsk Development Corporation – reached trial over the past month after prosecutors confirmed an indictment on four counts of large-scale bribery. The case has been notable because of a Chinese connection: a Chinese investor claimed last year that he was being pressured to pay 30 million rubles for utility connections for his oilseed processing facility.
• Another railway plan is put to sleep(ers): after more than a decade of promises, the government has now removed the Salym–Khanty-Mansiysk–Priobye railway from its list of priority projects, officially because “funding volumes were never determined”, officialese for a lack of money in the budget. The roughly 200-kilometer branch would have connected Khanty-Mansiysk, the seat of the oil-rich Khanty-Mansi Autonomous District, a city of over 110,000 to the Russian railway system. The 40-billion-ruble project had been formally prioritized since 2013, but construction never began. Similarly to other railway expansion plans, especially in Russia’s north, that have been cancelled or demoted during the full-scale war, the decision reflects a federal budget strain exacerbated by a continued focus on war-related spending and falling energy revenues.
• Court battles over assets: a Yekaterinburg court granted the prosecution’s claim in the third case against businessmen Artem Bikov and Alexei Bobrov whose STS Corporation and related assets had already been seized due to alleged corruption, in the same wave of nationalizations that also swept up Vadim Moshkovich, founder of agro-giant Rusagro, in May (among many others). In this third lawsuit, real estate, cars and bank accounts were also seized. This is happening in parallel to an appeal against the previous asset seizures, which a Chelyabinsk Region court accepted to hear in May. The case merits attention as it shows how regional elites are trying to fight back against the federally sanctioned wave of nationalizations, and the limits of this approach. 
• Crypto bans: On May 20, deputy prime minister Alexander Novak chaired a government energy commission meeting that considered banning cryptocurrency mining in Moscow and the surrounding Moscow Region as well as in several districts of the Kursk Region. What made the Kursk proposal interesting is that it has to do with the free electricity provided to certain districts of the region, which, according to governor Alexander Khinshtein, immediately led to an uptick of cryptocurrency mining. This is a story that has been seen elsewhere in Russia, notably the Irkutsk Region, which for several years has had one of the lowest electricity tariffs and highest concentration of cryptocurrency mining firms. The region’s per-capita electricity consumption grew 35 percent over 2020–2024, 2.2 times the Siberian Federal District average, with the regional audit chamber attributing the surge to crypto mining. 2025 itself saw a small reduction, which officials attributed to a warm winter and to a new (extremely unpopular) differentiated electricity tariff that forced moderation on both crypto miners and households (which however, unlike mining companies, mostly cannot relocate to other regions). 
• Utility basket cases: In the Maritime Territory, the Far Eastern Energy Company (DEK) announced that it would limit the provision of power to debtors, citing a critical rise in residential debt, with the total debt exceeding 5.8 billion rubles. Around 13,000 disconnection notices had already been sent out – this happens against the backdrop of rapidly rising utility tariffs, which hit the Maritime Territory particularly hard. Earlier, there were similar disruptions in the Sakha Republic, with the regional government having to enlist external financing to ensure heating provision in remote areas. In Kemerovo, another region under increasing financial stress, the debate around electricity provision escalated to the courts: in late April, the Kuzbass Energy Grid Company filed a bankruptcy petition against Rosseti Sibir, one of Russia’s largest electricity distribution subsidiaries, claiming 2.5 billion rubles in unpaid obligations. Rosseti Sibir flatly rejected the claim and challenged in the Supreme Court earlier rulings that awarded the money to KEnK. Rosseti Sibir also claimed that law enforcement has opened a criminal case into KEnK officials who attempted to steal funds from RS. Meanwhile, residents of Bodaibo, a gold mining town in the Irkutsk Region, were again experiencing a heavy disruption of water supply after they spent several days without heating and water earlier this year. Once again, the local authority was relying on gold mining companies to deliver water to the town while the repairs lasted, highlighting the role of the resource extracting companies as providers of social goods, especially during crises (which companies in crisis-ridden sectors will find increasingly difficult to do). These stories also show the frictions resulting from having to distribute the higher cost of energy, infrastructure maintenance and declining industries. 
• Municipal reform still contested: Deputies of the Izhemsky district in the Komi Republic passed a formal resolution calling on the regional legislature to stop adopting Komi’s version of the federal municipal reform law, which would essentially abolish lower-level municipalities and their institutions. Komi’s local Communist Party branch simultaneously filed paperwork for an initiative group formally demanding a referendum on the issue. One the one hand, this is a particularly active regional branch of a (systemic) opposition party trying to find talking points before the Duma election coming in September, knowing misgivings about the effects of the municipal reform on government services and accessibility. On the other hand, the fact that the issue threw up not only protests but referendum plans, reminded me of a similar series of failed ecological referendums from almost a decade ago, which then allowed civil society and the institutionalized opposition to converge and learn from each other. Five years ago I discussed the takeaways for Riddle. The domestic political atmosphere is much more repressed now, of course, but the issue is perhaps also heavier.