Two «gold belt» governments face loan axe and reorganisation

Photo: Marina Puškar

Finance ministry has launched adjustment proceedings regarding six local governments above debt ceilings for two years running, prescribing cuts. These include Keila and Viimsi of the rich circle around Tallinn.

In its memorandum to Keila city and Viimsi commune, the ministry requires that when compiling budget strategy for 2015-2018 they see that in four years loan burden fits the allowed limits. If they fail, reorganisation proceedings are in pipeline.

During reorganisation proceedings, state representatives help cut costs or get the local governments in shape some other way. During the crisis, such proceedings have already been initiated twelve times regarding three communes. While a commune cannot go bankrupt like a company, under reorganisation finance ministry officials will participate at budgeting, applying utmost pressure to bring loans down.

The reorganisation is similar to European Commission’s excess budget deficit proceedings – lately, just a handful of states has managed to avoid that, including Estonia and Sweden. During these proceedings, European Commission is not interfering in a state’s financial affairs but will just monitor to see that things get better.

According to finance ministry, local governments (KOV) often fail to understand the complex legislation and calculations. Both Viimsi and Keila foresee lowering of their debt burden to 60 percent, referring to law, while the allowed ceiling for them is actually higher.

«Reorganisation proceeding means a KOV needs to reach the individual ceiling. For Keila city and Viimsi commune, that is 100 percent. Thus it should not be said they are being demanded to reach 60 percent, as that is misleading. It seems to me that the KOVs have set themselves a tougher goal [than required],» says finance ministry local govt financial management department head Sulev Liivik.

The local leaders claimed all is under control and there’s no threat of reorganisation. A problem may surface with additional financing as that will have to be done by own funds only.

«We have a financing strategy coordinated with finance ministry, one approved by the [city] council. And that’s the strategy we are going by and the ministry has accepted that,» said mayor of Keila Enno Fels. «Next year our loan burden is already under 100 percent and by 2018 it is below 60 percent. This is the way we are going and there are no surprises with that,» he said.

According to Viimsi commune elder Jan Trei, their financial strategy prescribes getting the net debt load into limits set by law by the end of 2018 (i.e. below 60 percent). With its budget strategy, Viimsi commune has followed the measures required by finance ministry and there’s no threat of reorganisation. «The only obstacle we may run into is that if at the moment of using external means Viimsi commune is above the allowed new debt rate, the commune will not get immediate payments but with a delay,» said Mr Trei.

According to mayor of Keila, the city may assume no loans during four years but own financing to certain projects is allowed. «If own funds are there, investments are not hindered. With external helps it’s like if we manage with self-financing then it’s okay,» is how Mr Fels commented effect of adjustment to the city.

During the adjustment proceedings launched towards both local governments, there will be no intervention into local finances. The local governments undertake not to worsen their financial situations and to diminish their net debt load to prescribed level. On top of current budget year, they have four more years to do that.