Gov’t to unfreeze local budget surpluses to aid recovery

María Jesús Montero at the press conference after the Council of Ministers this Tuesday. Photo: Eduardo Parra / Europa Press
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Spain’s coalition government has told the national association of municipalities and provinces that local town councils across Spain will be allowed to spend part of their accumulated budget surplus, resulting in the injection of an estimated 5 billion euros into the economy to aid in the recovery from the negative impacts of the coronavirus crisis.

The Ministry of Finance has communicated the government’s proposal to the Federación Española de Municipios y Provincias (FEMP, Spanish Federation of Municipalities and Provinces) in a move meant to calm protest by local mayors over the government’s previous position to deny them unfettered access to the accumulated surplus monies.

The proposal, submitted to the FEMP for approval, entails a somewhat complex financial maneuver that ultimately enables the government to deliver the surplus funds to municipalities to spend on specific areas to help the local economies recover from the economic fallout from the coronavirus crisis.

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The budget surplus that municipalities have accumulated in recent years has remained frozen in their bank accounts because of legislation enacted by the absolute majority of the conservative Popular Party in Congress during the previous government in the wake of the economic crisis in Spain triggered by the global mortgage default crisis of 2007-2008.

According to reports in the Spanish press, the proposal made by the government to the FEMP states that the municipalities that have a surplus would lend the funds to the central government, which will then return the monies to them as off-balance-sheet income.

The maneuver would apparently enable the central government to maintain the appearance of control over the funds so as not to weaken Spain’s financial standing in international debt markets, while effectively delivering the funds to local town councils to be spent on recovery-related areas, including housing, local infrastructure, social services and culture. Once the FEMP approves the agreement, the cabinet-level Consejo de Ministros will issue decree legislation that could come into force by the end of July.

The government’s offer to the municipalities comes just one week after the Socialist party of President Pedro Sánchez sent local mayors nationwide on the warpath after being the only party in the congressional Commission for Social and Economic Reconstruction to vote against a similar proposal to free up the municipalities’ accumulated budget surplus for coronavirus recovery efforts.

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