return to normal in 2021 for OFGL

The Postal Bank foresaw this, the government confirmed, the Observatory of Finance and Local Government (OFGL) just confirmed this on Tuesday, June 21, in its annual report: community finances knew – in general – to return to normal after the crisis. brings together experts and local and national elected officials at an estimated € 3.5 billion in net damage to communities (see box). “2021 marks a return to trends or levels that are more in line with previous observations [ 2020] “, – say the authors of the report.

+ 19.9% ​​of gross savings

The financial performance of communities is green again: gross savings peaked at + 19.9%, which “more than offsets the decline in 2020 by -11.5%,” the report said. It was used by all local governments, except for the regions, whose self-financing in 2021 (5.8 billion euros, + 13.9% compared to 2020) remains 10% lower than in 2019.

Such good governance results are driven by revenue dynamism (+ 5% compared to 2020), while the local sector was able to control spending by + 2.4% (compared to 0.6% in 2020). In detail, it is the transfer fee (DMTO), which leads to a third increase in income. Excluding DMTOs, which are also naturally poorly distributed, revenues grew by only 3.3%.

This is, first of all, the structure of the basket of tax resources, which was deeply disturbed in 2021: “local authorities have undergone massive remittances through the reform of housing tax and economic taxes, which, for example, reduced all electricity tariffs departments,” – regrets Andre Leinel , president of the local finance committee that oversees the OGFL. VAT has effectively offset the loss of € 37.4 billion in tax revenue, making it “the first tax resource for local governments”, according to OFGL.

The mechanical proliferation of compensation schemes around the housing tax, as well as CFE bases or management fees, has led to an overall increase in state aid of 5.6% last year.

Heat stroke on additional budgets and staff costs

On the expenditure side, if the local sector returns to a relatively normal growth rate of 2.4% (compared to 0.6% in 2020 due to the health crisis), auxiliary and trade union budgets will be hit by +4.3% and + 6.4%. In addition, operating costs vary widely depending on the category of local government: + 2.7% for the municipal district, + 1.4% for the departments and + 3.5% for the regions.

Another lesson is that staff costs will increase significantly again in 2021: + 2.9%, as in 2017, when the index point was raised and the grid of civil service index networks was restructured. However, the most important thing on the balance sheet is not the payment of civil servants: their salary fund increased by only 0.7% in 2021. On the other hand, communities have made extensive use of preferential jobs, which are rising. 15.1% in 2021, the number of students increased by 12.8%, and other types of contracts – by + 11.2%.

Note the taste of communities to restore visibility: spending on advertising, fairs, receptions and public relations increased by 24.7%. Finally, local authorities have resumed their current procurement policies, while not affected by inflation, which will be taken into account in this year’s figures.

Lack of visibility at all levels

For Andre Lainel, this “comprehensive exercise” gives primarily an “invisible result”, in particular due to the specter of inflation, which began in late 2021 and which has been deployed at full cost since the beginning of the year. The perceived vagueness is confirmed by the differences between the initial budgets and management accounts, as well as, in particular, investment costs: if they are restored at + 5.3%, in particular due to the postponement to 2020, they are less than those voted in the initial budget (+ 8.8%) and does not catch up with the air pocket of 2020: -0.6% in 2019-2021 and even -11.3% for municipalities, the main category of investor communities.

EPCI, for its part, stopped in 2021: they cut their subsidies by 6.2%, resulting in their overall investment spending falling to a low of 0.6%. Investments of the municipal bloc brought more additional budget and trade unions (+ 10.9%) by a quarter of their amount. Naturally, they financed environmental projects, in particular in the field of waste collection or water management, as well as transport.

Return to more or less luck

Revenue growth of 5% also surprised local players, who expected weak growth of 1.5%, fearing the consequences of the crisis for taxation and business income. On the tax side, if the DMTO (+ 24.5%) as well as the TICPE (+ 1.3%), TCFE (+ 5.2%) or mobility payment (+ 8.7%) exceed the 2019 level, changes tourist fees (+ 5.3%), gambling (-17%), taxes on registration certificates (+ 3.5%) and basic economic taxes (CVAE (-1.1%), Tascom (-0.6%) ) and TLPE (18.7%)) are still lagging behind.

In terms of operating income, increase in fees and parking fees (+ 12.6%), income related to transport, recreation, sports and extracurricular activities, it is not possible to recover the amount in 2019. To this structural instability, C added that – for a cyclical time – inflation, forcing the chairman of the local finance committee to say that “clouds are gathering on local government.”

3.5 billion in net losses

OFGL conducted a comprehensive exercise to assess the two-year health crisis. At the end of the calculation, communities show a cumulative reduction in tax revenues of 1.9 billion euros, including 600 million euros in 2021. The municipal bloc is 63%. Similarly, the loss of operating income is estimated at a total of almost 3.5 billion euros, including 938 euros in 2021. Taking all the losses together, the observatory estimates gross losses at € 7.1 billion in two years: € 4.9 billion in 2020 and € 2.2 billion in 2021. At the same time, according to OGFL estimates, in 2021 the local government saved 823 million euros, but almost 1.1 billion euros of induced costs, ie a net cost of 260 million euros. Excluding state aid (mask competition, € 216 million safety net in 2020 and € 57 million in 2021, reimbursable advances to AOMs, etc.), net local government losses are estimated at approximately in euros. 3.5 billion in two years, “compensated by the efforts of local authorities, which led to the restoration of gross savings of local authorities,” says Andre Lainel.

Read Cape about the impact of the Covid crisis on local finances in 2020 and 2021