Insufficient Community Expenditure on Structural Funds Fails to Account for Structural Funds' Costs, Court of Auditors Determines
Local Authorities Facing Unprecedented Financing Strain
According to a recent government report, certain local authorities have been identified as contributing factors to the tumultuous state of public finances. In contrast to plans intended to foster financial recovery, spending by local authorities has surged unexpectedly in 2024, outpacing state and Social Security expenditures.
The report, titled Local Public Finances Annual Review, released on June 27, points out that last year's financing requirements for local authorities stood at a hefty 11.4 billion euros (0.4% of GDP), marking the highest percentage-wise since 2008. Regrettably, the total balance of local authorities is a staggering 8.5 billion euros worse than projected by law.
The reasons behind this financial quagmire are multifaceted:
- Growing requirements for infrastructure investments and services have amplified the discrepancy between current fiscal resources and necessitated investments, prompting local authorities to scramble for more financial backing.
- Traditional fiscal sources and international development funds have fallen short of addressing the escalating investment requirements, particularly as municipalities grapple with climate change implications, population growth, and socio-economic development challenges.
- The use of private and repayable financing instruments to bridge the gap has been hampered by regulatory, market, and capacity constraints at the municipal level.
- Economic and macroeconomic instability has impeded local governments from accessing affordable and timely finance to cover both immediate and long-term financial obligations.
- Ongoing reforms and changes in local government finance management, auditing, and investment strategies have influenced financing needs as authorities adjust to shifting regulatory landscapes and focus on improved compliance and governance.
Collectively, these factors illustrate why local authorities in 2024 faced a dramatic increase in financing requirements, surpassing expectations and reaching a 13-year high, as highlighted in the Local Public Finances Annual Review and various subnational finance studies.
In essence, the financing gap widened due to increased investment demand, limited traditional funding, restricted repayable finance flows, and a combination of ongoing policy reforms, regulatory challenges, and evolving economic conditions that local authorities must navigate.
In the Local Public Finances Annual Review, it was stated that the increased spending by local authorities in 2024, outpacing state and Social Security expenditures, contributes to the challenging financial situation faced by these authorities. The widening financing gap experienced in 2024 is a result of factors such as rising investment demands, insufficient traditional funding, restricted repayable finance flows, ongoing policy reforms, regulatory challenges, and economic instability. These factors also impact local business and politics as they affect the provision of essential services and infrastructure crucial for the community's well-being.
