Spanish cities in debt

According to figures provided by the Ministry for the Economy 8 out of Spain’s 52 provincial capitals now owe on average more than 1000 euros per inhabitant. In fact last year was a record year for local town halls and regional governments getting into debt with a new record of 34,595 million euros of debt out of which 28,770 correspond to town halls and 5,825 to regional governments. The town hall of Madrid stands out because the 6,777 million euros of debt it has acquired is almost a quarter of the total debt owed by all of Spain’s 8000 municipalities put together.

Last year Spain’s town halls acquired a budget deficit equivalent to 0.5% of GDP. However this is much less than central government which has acquired a budget deficit equivalent to 8.7% of GDP or regional governments which have acquired a budget deficit equivalent to 2.2%. Nevertheless the debt owed by town halls has started to have serious consequences such as redundancies, cuts in services or reduction in salaries.

The problem for town halls is in part down to the property crash because a large proportion of its revenue was linked to the property boom and many town halls used money it received through property sales to finance its ordinary activities. With the reduction in these payments town halls have raised their levels of debt by 2,565 million euros.

In cities with more than 50,000 inhabitants levels of debt owed by town halls has risen on average by 9.4%. In particular, Ceuta has raised its levels of debt by 109 million euros, Málaga by 101 million euros, Sevilla by 100 million euros and Madrid by 93 million euros.

There are 446 municipalities which have raised their levels of debt by more than 100% among them Ceuta and Cáceres. Another 380 town halls have seen debt go up by 50% amongst them Melilla, San Sebastián, Cuenca and Vitoria.

Nevertheless almost 3000 municipalities have reduced their levels of debt and another 2,845 have maintained it at zero.

The increase in debt of Spain’s town halls and regional governments means that there are 8 provincial capitals which owe more than 1000 euros per inhabitant. This is the case in Ceuta, Madrid, Teruel, Melilla, Málaga, Zaragoza, Tarragona and Valencia. The provincial capitals which owe the least amount of debt are Bilbao, Toledo and Pontevedra.

The amounts owed by town halls is less than it could be thanks to Plan E funded by central government which in 2009 invested 8,000 million euros in local projects. However, in 2011 town halls will be forced to settle their accounts and not only will Plan E investment come to an end but also it will be time to balance the books and in many cases central government has invested more than necessary which means town halls will be need to repay excess funding.

This week the government signed an agreement with the Spanish Federation of Municipalities and Provinces (FEMP) to reduce their budget deficits from 0.5% of GDP to 0.2% by 2013.

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