Local and regional councils are better managers than the state, but the deficit won’t escape them

Overall, local governments remained in the black in the first half of the year, despite the financial crisis. However, CCB forecasts a deficit of CZK 15 billion for them by the end of the year.
​In general, local governments are considerably better managers than the state, despite the financial crisis. This follows from a government report on the fulfillment of the national budget for the first half of this year, which the Chamber of Deputies is currently looking at. 

While the state ended up with a deficit of CZK 68 billion in the first half of 2009, local and regional councils, including their various unions, reported a surplus of almost 28.6 billion. 

Compared to the first half of last year, the surplus among local governments declined by 10 billion (it was 38 billion at the same time last year), but the state’s deficit deepened by 62 billion (last year it was only 6 billion). Among municipalities, the surplus for the first six months of this year was an impressive CZK 10.5 billion, which is 8 percent of their revenue. The regions showed an even better result: their surplus was 16.3 billion, which is almost one fifth of their revenue. 

The debt of local governments declined by almost 2 percent in the first six months of the year. Among municipalities, it dropped by 3.4 billion, while in the regions it increased by 1.7 billion. According to Věra Kameníčková, analyst from the Czech Credit Bureau, it is still too early to judge whether the difference was caused by last year’s change in regional governments or the compensation of healthcare fees.

Ms Kameníčková expects that in the results for the entire year, local governments will have a 15 billion deficit, but in her opinion this would still be in sharp contrast to the massive state deficit. 

Why is there such a difference between the state and local governments? “Good municipal management is a long-term trend. The only new thing this year is that the state is finally admitting it,” commented Jaromír Jech, Executive Deputy Chairman of the Union of Towns and Municipalities to Ekonom weekly. He sees two reasons for success: “Firstly, municipalities know that nobody will give them anything, which is why they approach approval of the municipal budget responsibly and conservatively. Secondly, in this period municipalities were rescued by subsidies from European funds for co-financed projects,” he describes. 

Deputy Finance Minister Bohdan Hejduk appreciates the successful economic management of local governments. However, he points out that the results of the individual municipalities, towns and regions are very diverse. 

According to Mr Hejduk, lower tax revenue is apparent in the local government results for the first half of the year. The deputy minister estimates that in the second half of the year, the impact on municipal and regional financial results will be even more evident. “Overall, local budgets will close their 2009 economic results with a deficit,” he also forecasts.