September 29, 2020

What is the decree on the remnants of the municipalities that Congress has overthrown?


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The Congress has voted in the plenary session this Thursday the repeal of the Royal Decree-Law that includes the agreement of the Treasury and the Spanish Federation of Municipalities and Provinces (FEMP) for the voluntary assignment of the municipal remnants to the State.

For understand what is happening, and the reactions that this proposal is causing, it is necessary to clarify the following concepts.

What are the remnants (municipal savings)?

According to the Accountability Portal, an initiative led by the Court of Accounts, the remaining treasury reflects the liquidity situation of the entity at the end of the fiscal year, which is available to finance expenses, being a very important indicator to assess the short-term financial solvency of the local entity.

The remainder is obtained as the sum of the liquid funds (the money that is in the box and in the banks) plus the rights pending collection, deducting the obligations pending payment and adding the items pending application.

In other words, the remnant is the set of all accumulated savings of past years that include surpluses (situation in which an entity has more income than expenses over the course of a year) that have not been spent and that reflect its financial situation if, as of December 31, it had to pay all its debts with your short-term resources.

When the remainder of the treasury presents negative values, indicates that the local entity will have to obtain greater future resources to meet the excess expenses, that is, the entity is unable to meet its debts at the end of the fiscal year in which it is located. This short-term insolvency arises because throughout the year there have been more expenses than income, without the liquid resources being sufficient.

In this way, and according to the portal, the financial solvency In the long term of a local entity it will be in difficulties if the remaining treasury offers negative annual balances on a recurring basis.

What does the law say today?

To understand what is happening you have to go back a few years and talk about what is known as “Montoro Law” (Organic Law 2/2012, of April 27, on Budgetary Stability and Financial Sustainability).

The budget stability is the guideline that establishes that public administrations must close their finances in balance over a period of time, be it a year or more, being able to incur a surplus but never a deficit (a situation in which an entity, in this case municipalities, has more expenses than income in a year).

As established by the Article 12 of this Organic LawAs a spending rule, a city council cannot spend more than a specific amount compared to the previous year, which is already marked by the “reference rate of growth of GDP in the medium term of the Spanish economy”. What does this mean? It means that, in this current assumption, in which this figure reached 2.9% last year in our country, if in 2019 a city council spent 200 million euros, in 2020 it cannot spend more than 102.9 million.

In this way, at present municipalities cannot spend the remainder that they have accumulated and only have the option of using them to repay debt or bank deposits, provided that no deficit is incurred.

What did the new law propose?

In case of being validated, the new law proposed that Treasury would transfer up to 5,000 million euros to municipalities with treasury remnants that voluntarily participate in the loan to the State so that they can be used for certain matters, such as mobility or culture.

Likewise, the standard provided that the State would return the full amount to the municipalities of the loan in the next 10 years from 2022, although the term could be extended to 15 years.

The agreement also included the non-application of the spending rule, so that in 2020 local entities would not be so limited to spend their budget this year.

Once the volume of the loan is known, the State would make a non-financial income to the local entities participating in it. The amount of income would suppose for each municipality, at least, the 35% of funds contributed to the loan and it would increase to a total of 5,000 million euros among all the municipalities that were part of it.

In addition, the State would transfer a maximum of 2,000 million in 2020 and 3,000 million in 2021 to local entities that have collaborated. As stated by the Government, the money would be released in two years to meet the request of the FEMP to give the municipalities a sufficient period to execute the 5,000 million.

On the other hand, the Ministry of Finance also communicated that local corporations participating in the fund would benefit from an effective interest rate of 0% and up to € 70 million could be saved yearly of interest that today they are paying to have their remnants in financial entities.

Who are the mayors who have risen up?

At present, there are more than 30 the municipalities have risen before the Ministry of Finance to claim an alternative that allows them to spend their surplus and remnants.

Last August, the mayor of Zaragoza, Jorge Azcón Navarro (PP), called a telematic meeting to analyze the agreement in which the most disparate councilors of Spanish municipalities participated to sign a manifesto against the remnants agreement.

Thus, the councilor of Bilbao, Juan María Aburto (PNV); the one from Cádiz, José María González «Kichi» (Forward Cádiz); that of Granada, Luis Salvador (Citizens); that of Lérida, Miquel Pueyo (ERC); that of Madrid, José Luis Martínez Almeida (PP); that of Murcia, José Ballesta (PP); that of Pontevedra, Miguel Anxo Fernández Lores (PP); that of Reus, Carles Pellicer (CDC); that of Santa Cruz de Tenerife, José Manuel Bermúdez Esparza (Agrupación Tinerfeña) and the Mayor of Zaragoza, Jorge Azcón (PP) requested that the Government allow councils to fully dispose of their savings “In matters that are not included within the decree.”

They are not the only ones to rebel against the new law. Ada Colau, mayor of Barcelona, ​​publicly stated that the measure seemed to her “Simply unacceptable”.

Furthermore, various Socialist councilors have openly shown their rejection against a plan that, as the councilor of San Sebastián de los Reyes, Narciso Romero, has maintained, is “harmful” for the residents.

Manuel Rando, president of the Diputación de Teruel, and Vicente Grimalt, mayor of Dénia, are other names that have dropped from the agreement because, in one way or another, both consider that “it’s not the moment”.

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