Municipality Budget Deficit at a Record 14 Billion CZK Last Year. Municipality revenues decreased; subsidies partially offset the drop.

Czech municipalities, excluding Prague, recorded a budget deficit of CZK 14 billion last year, the highest in nearly twenty years. Apart from a decline in revenues (partially offset by an increase in subsidies), this was caused mainly by increased expenditure, which grew by 9 per cent. The total debt of municipalities rose by 14 per cent, reaching an average of CZK 5,845 per capita. This data comes from analysis carried out by CCB – Czech Credit Bureau, the CRIF Group company which provides municipalities with business rating and consultancy services.
 
Record Budget Deficit

After two years of surpluses, municipal budgets recorded a deficit of CZK 14 billion in 2009, which represents 7 per cent of expenditure and, at the same time, is the highest budget deficit since 1990. In 2009, a deficit was registered by 51 per cent of municipalities, while the remaining 49 per cent saw a surplus. In comparison to 2008, the situation has deteriorated. Back in 2008, a surplus or a balanced budget was recorded by 72 per cent of municipalities, while only 28 per cent ended with a deficit.

Subsidies Partially Compensate for Drop in Revenues

The deficit reflected the drop in the total revenues of municipalities, which decreased by CZK 5.8 billion from 2008, equal to 2.8 per cent of the total. The biggest drop in revenues compared to 2008 was seen in cities 
(-6.5 per cent) and the lowest in rural municipalities (-0.5 per cent).
“As far as individual categories of municipality revenues are concerned, the largest annual decline was seen in tax revenues, which decreased by 11 per cent last year. However, this drop was offset thanks to subsidies, which grew by more than 12.4 per cent compared to 2008. We recorded the fastest growth in subsidies in rural municipalities. However, in the case of cities there has been a decline”, said Pavel Finger, a member of the Board of Directors of CCB – Czech Credit Bureau.

Higher Expenditure Aimed Mainly at Investments

Despite the reduced revenues, the expenditure of municipalities increased by 9 per cent and, in the case of rural municipalities, up to 12 per cent. The share of capital expenditure grew from 28 per cent of the total expenditure in 2008, up to 31 per cent in 2009.
“In our opinion the growing share of capital expenditure is positive. It shows that municipalities have behaved economically, and despite increasing expenditure, it was used for investments and not consumption. It is possible that such a step could support businesses in the regions and help maintain jobs during the financial crisis,” said Jan Cikler, Project Manager of CCB – Czech Credit Bureau.

Municipality Debt Increases

Municipality debt increased by 14 per cent and the increase was the fastest in rural communities, where the increase was 21 per cent. On average, municipality debt equaled CZK 5,845 per capita.
“A fourteen per cent increase in municipality debt in 2009 is still lower than the increase in the high state debt, which amounted to 18 per cent last year,“ said Pavel Finger.

Municipality Rating Worsens

An analysis provided by CCB – Czech Credit Bureau, which evaluates the economic situation of municipalities with its own rating system (iRating), shows that the average iRating of municipalities deteriorated in 2009. The number of municipalities with the worst rating level grew by 91 and so, according to the study, 449 out of a total of 6,238 municipalities ended up with a C- rating, which means probable financial problems in the future.

Situation in the Regions

Municipality debt varied between individual regions. Municipal debt per capita is traditionally highest in municipalities in the South Moravia Region, reaching CZK 9,635 last year. The other two regions with the highest debt are the Liberec Region, with an average debt of CZK 8,167 per capita, and the Moravian-Silesian Region, with CZK 6,633 of debt per capita. The Ústí nad Labem Region boasted the lowest municipal debt – CZK 3,415 per capita.

Analysis

All data are based on the following municipal structure: the group of 6,238 municipalities comprises 5,449 rural municipalities (87 per cent of the total), 766 towns (12 per cent) and 23 cities (0.4 per cent). The total population (excluding Prague) comprises 31 per cent in rural communities, 45 per cent in towns and 24 per cent in cities.