South Ostrobothnia municipalities draw up deficit budgets

Many municipalities in South Ostrobothnia, a region of Finland, are preparing deficit budgets for next year as financial pressures mount, Yle reports. Kauhajoki, Evijärvi, Isojoki, Alajärvi, Lapua and Kauhava are among those expecting a shortfall.

One in three municipalities in the region also applied this autumn for a discretionary increase in central government transfers. Sanna Lehtonen, who leads municipal finance work at the Association of Finnish Local and Regional Authorities, said weak employment was currently putting the greatest strain on municipal finances. Unemployment-related penalty payments are rising, while tax revenues are growing slowly.

“It is difficult to imagine any quick help for municipal finances right now,” Lehtonen said, adding that municipalities are waiting for the economic cycle to turn and employment to improve.

Kauhajoki Mayor Niku Latva-Pukkila said the city’s tax revenues were below forecasts this year and were expected to remain so next year. The city also has one of the highest unemployment rates in South Ostrobothnia, he said. Government finances affect municipalities through central government transfers, while the broader economic situation affects companies’ ability to employ people.

Savings and investment

Kauhajoki and other municipalities have introduced financial adjustment programmes. In Kauhajoki, staff furloughs have led to reduced opening hours for some services, Latva-Pukkila said.

The city has also recently completed a major renovation of its main library, which reopened to the public on Tuesday.

Residents often feel the effects of savings through school closures, as education is municipalities’ largest area of responsibility. In a brief street survey in Kauhajoki, residents voiced particular concern about services provided by wellbeing services counties and the state. “Everyone complains that you can’t get to see a doctor,” Hilkka Tuomi said.

Evijärvi Mayor Mikko Huhtala said the municipality was carefully reviewing every budget item and expected its budget to be in deficit. Teuva Mayor Rami Mattila said losses of 500,000 euros in rental income from social and healthcare properties were weighing on the municipality’s finances, and that it would probably postpone an investment in a swimming pool.

Long-term pressures

Kauhajoki’s population has fallen by a couple of thousand over the past 15 years. A forecast cited by the city says it could shrink by a further quarter of its current size by 2050.

Lehtonen said municipal finances were generally stable despite the deficit budgets. Individual deficit budgets or financial statements are not unusual or in themselves dangerous, she said, but accumulated deficits must be covered within four years and revenues and spending need to balance over the long term. Municipalities are taking on little borrowing to cover day-to-day costs, she added.

Lehtonen said the most difficult situation is in municipalities where service costs are rising as the share of working-age residents falls. Latva-Pukkila said sustainable municipal finances would require economic growth and taxpayers, as well as discussion about which services municipalities provide and what responsibilities they should have.