Revealing the level of debts of the local councils was not done with the intention of shocking the citizen. It was certainly not done for sensationalism. The dire financial situation of local councils is a problem that needs to be solved. And this is a cause of sleepless nights for me. Indeed, it is not a problem that I was expecting when I took over the local councils a few months ago.
I had the impression that the governance of the local councils was going to be all fine and dandy. This is the impression I had when observing the previous administration. In fact, I sort of envied the PN government’s parliamentary secretary who featured constantly in the media, inaugurating something or other in various localities, announcing one scheme after another with such enthusiasm.
On taking office, a number of mayors contacted me in person to complain about their lack of funds. I could not understand this. No problem is apparent from the financial estimates.
There was no overspending of the funds allocated, indicating that these should be sufficient. Digging deeper, however, the source of the councils’ concerns was tapped – and then it became my concern as well. In fact, the local councils’ debts of €22 million are a concern for all of us.
In order to solve this problem, I had to understand how the situation had deteriorated to such an extent. The councils depend on the allocation of funds from the central government’s budget in order to operate and carry out their legal functions.
Quite straightforward up to here. However, the schemes that started cropping up from 2009 were not properly planned and managed, and proved to be the trigger that directed councils to seek alternative sources of finance. And if they were not successful, they ventured into the red zone of credit.
The objective of the schemes was noble. They encouraged local councils to venture into activities and projects that were desirable for the localities and the citizens. However, the financing of these activities and projects was not adequately planned. Through these schemes, the central government financed a small part of the total cost required to execute the activity or project. The rest had to be sought by the councils.
I have initiated a reform process for local government in order to give councils the tools they require to pay off their debts
Some of them managed to obtain EU funding, but EU funds do not cover 100 per cent of the cost of a project and the balance remained a problem that needed to be solved. Some councils sought alternative sources of finance through bank loans and overdrafts. These needed the authorisation of the ministry, which was given.
Others obtained credit from their suppliers. This means that recurrent bills are not paid, and this source of finance would not require any official authorisation.
In order to pay off these loans and bills, the local councils would need to economise on their spending for their other legal functions, and this is where desperation starts to set in.
Some of the projects that councils were encouraged to entertain were of a capital nature. This is outside their legal functions.
To rub salt into the wound, the law does not provide for central budgetary funds to be allocated to them to cover their capital expenditure.
The only budget item that provides for this is the one called ‘PPP roads scheme’. The funds in this scheme only cover a small percentage of the total cost, and the councils then obtained long-term credit from the private contractor who provided the required road works.
Council debts exploded through this scheme, going up by €4.8 million during 2011 and by a further €3.5 million in 2012.
Through the good sense it exercised, the Labour administration managed to retain the debts at the same level during 2013. But I am not happy with this situation at all. Together with my team at the ministry, I have initiated a reform process for local government to give councils the tools they require to pay off their debts, become financially stable and operate in a sustainable manner.
We are providing training for executive secretaries, which includes the enhancement of their financial awareness. We are in the process of amending the regulatory framework of local councils to better reflect their operational needs. And we shall endeavour to better plan capital projects undertaken by the councils to ensure they are in tandem with national plans so that proper funding is made available.
Ours is a long-term project that will render councils sustainable and provide a better service to the citizens of today and for future generations.
Stefan Buontempo is the Parliamentary Secretary for Local Government.