TALLINN, 5 May 2011 - The recession of recent years has placed major limitations on the ability of local governments to finance their own activities and has forced many municipal governors and mayors to make difficult decisions. The area most keenly affected has been the ability to invest in road construction and upkeep, although in absolute terms the fields which have seen the greatest decrease in expenditure over the last two years have been education and economic affairs.

The National Audit Office analysed the financial indicators of towns and cities and municipalities and canvassed the opinions of local government leaders regarding the effect of reduced income due to the cooling off of the economic environment in 2009 and 2010 on the organisation of work in local government departments, their ability to provide public services and their ability to cope in general.

Local government revenue decreased dramatically in 2009 and 2010. Compared to 2008, income during the recession was almost 2.9 billion kroons (185 million euros) lower – a drop of 13%.

With revenue dwindling so rapidly, the need to critically review outgoings and make prompt decisions to bring them into line with the reduced level of income was inevitable. From the data submitted by local governments it can be seen that spending was cut by approximately 4.2 billion kroons (268 million euros) between 2008 and 2010. Around 90% of all local governments were affected by a decrease in revenue in 2009 and 2010, in almost a third of which it is the view of the local government leaders that this has negatively affected the availability of services. Nevertheless, more than half of local government leaders were of the opinion that the decreased level of income had not led to major changes for local residents or businesses.

At the same time, with less revenue being generated, one in four local governments has been unable to continue fulfilling voluntarily adopted tasks. The list of such voluntary services has been shortened in 24% of local governments, with the areas mainly affected being the payment of support in the fields of culture, sport and youth work.

Due to the reduction in investments and management costs, the areas that have suffered most are the state of streets and roads and street lighting. 82% of local governments experienced a worsening in the condition of streets and roads during the recession due to lost investments and maintenance work that has not been able to be undertaken, while 66% of local governments made savings by cutting the number of operating hours of street lighting. 33% feel that opportunities to use public buildings have also been affected by decreased spending (for example, energy consumption has been reduced to a critical level).

In absolute terms, the fields which have seen the greatest decrease in expenditure over the last two years have been education and economic affairs. A third of all local governments have experienced problems in meeting their financial obligations. The most common problem (shared by 27% of local governments) has been related to making repayments on time to providers of goods and services.

Irrespective of decreased revenue, the number of local government departments has not been significantly affected: this did not change markedly during the recession. Staff numbers, conversely, have decreased over the last couple of years in 50% of the local governments surveyed, with 37% feeling that this was a result of the decrease in income. The number of staff in the 213 local governments in question fell by a total of 4%.

In addition to staff numbers, more than half of all local governments (58%) have been forced to cut salaries – by an average of 10% compared to 2008. Of the local governments surveyed, almost a third conceded that the reduction in personnel costs has affected the availability of services: administrative reaction time has lengthened in almost 24% of local governments, while the opening and operating hours of departments have been cut in 14% of local governments.

However, the National Audit Office is unable to either confirm or counter the assessment of local governments regarding the change in the availability of services, since the state still has not defined, even in general terms, the minimum level or quality requirements of such services.

In spring 2010 the National Audit Office drafted an overview of the revenue, expenditure and changes in the financial status of local governments in 2009 compared to 2008 and expressed its view that the reactions of local governments to the financial crisis – which should have been reflected in budgetary cuts – were slow.

Adding 2010 data to the foregoing, it can be seen that a number of local governments have made additional spending cuts in the last year and that their budgetary positions have significantly improved.

The overview did not assess the choices made by municipal and civic authorities during the recession, instead generally describing the nature, scope and consequences of changes in revenue and expenditure. The information available in the balance data information system and presented in monthly reports on the fulfilment of local government budgets was used in the analysis of financial indicators. Data obtained from the Tax and Customs Board was used to determine the connection between changes in the amount of tax revenue of local governments and the number of taxpayers. In addition, 213 local governments were surveyed.

Kind regards,

Toomas Mattson
Head of Communication Service
National Audit Office
Telephone: +372 640 0777
Mobile: +372 51 34 900
E-mail: [email protected]
 

• Posted: 5/5/2011 9:02 AM
• Last Update: 11/10/2015 5:48 PM
• Last Review: 11/10/2015 5:48 PM