In addition to structural financial deficits, municipalities regularly have money left over at the end of the year. This contradiction is evident research of Radboud University among municipal audit offices. On the eve of the March 18 council elections, they warn that municipalities must budget better and more realistically. The underspending is because they spend less than budgeted and because “more money unexpectedly comes in” from the government.
The risk is that municipalities’ financial problems will be exacerbated by underspending, says Lies van Aelst, director of the Association of Audit Chambers (NVRR). “If you have to make cuts in youth care due to a structural funding shortage and at the same time not properly budgeted, cuts may have been decided on other matters that were not necessary in retrospect.”
Councilors budget generously so that they do not have to ask for extra money halfway through the year
“Aldermen budget generously so that they do not have to ask for extra money halfway through the year. A windfall afterwards seems politically easier,” says Van Aelst. “That is not fair to representatives who make difficult austerity choices and therefore receive backlash from residents.”
For years, a majority of the 342 municipalities have been structurally short of money, partly because the government has allocated too little for a growing number of government tasks that they carry out. The previous government partly compensated local governments by allocating extra money for youth care until 2028, the largest cost item. This meant that the so-called ‘ravine year’ was postponed.
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The government pays at the end of the year
Researchers from the Public Administration department of Radboud University, on behalf of the Association of Audit Chambers, spoke with 110 audit offices, which have the legal task of checking for 138 municipalities whether they spend public money ‘sensibly, economically and carefully’. The association wondered why multi-year budgets often result in deficits, while annual accounts show windfalls. The Ministers of Finance and the Interior point to these surpluses when they say that the financial position of municipalities is not too bad.
The discrepancy has four causes, the study concludes Navigating between crises and ambition. Municipalities can do little about one: the government. The national government will provide additional billions during the year, while local budgets have already been set.
The study mentions the energy surcharge as an example, with which households with a low income and high energy bills could receive money in 2023. Municipalities paid this allowance, but only received it from the government at the end of October. It proved difficult to spend all the money before the end of the year, so it appeared as a surplus in the annual accounts. Local governments have an accrual account and must allocate income to the financial year in which the money was given.
According to the researchers, the government is further “disruptive” by occasionally transferring money in May and September. By law, this may only be used to a small extent for structural shortages in, for example, youth care.
Many vacancies, many external hires
But the audit offices also see that municipalities themselves can ‘turn the dial’. For example, they are too optimistic about filling vacancies: salaries are budgeted while there is a staff shortage and the aging population is hitting civil servants hard. From one research The Ministry of the Interior showed last year that more than 10 percent of the staff had not been filled in 15 percent of the municipalities. That leads to a surplus.
Because there are vacancies, municipalities hire expertise and the costs are actually underestimated. According to Van Aelst, because “representatives hate external hiring.” For example, the study states that fourteen rural municipalities had together budgeted 17 million euros for hiring in 2017. However, the costs that year amounted to 40 million euros.
Pessimism exists especially with municipal taxes. According to the study, these are estimated as ‘structurally too low’
Local authorities also budget too ‘optimistically’ in other areas. Money is set aside for large housing construction projects, road construction or sewer replacement, while these are “vulnerable to delays” due to objection procedures, higher material and personnel shortages. These “setbacks in planning may be (partly) foreseeable in advance.”
Pessimism exists especially with municipal taxes. According to the study, these are estimated “structurally too low”. About 10 percent of the income comes from property tax, parking fees and tourist tax. The latter shows that between 2017 and 2024 the average yield was estimated to be 8 percent higher. Such windfalls leave “public money on the table that could have been spent on useful things,” the researchers note.
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