Ministry offers €200m incentive to accelerate municipal mergers

Finland’s Ministry of Finance has proposed increasing merger grants by €100 million to €200 million to accelerate municipal mergers, Yle reports. The money would be transferred from municipalities’ state transfers to grants for municipalities that merge.

The proposal has revived a debate that had nearly disappeared from public discussion. Ministry Director General Jussi Virsunen said the number of municipalities would decline either through voluntary mergers or assessment procedures.

Virsunen said there did not appear to be political support for compulsory mergers and that municipalities’ right to self-government would remain intact. In the same interview, however, he said the number of municipalities would fall “one way or another”.

In addition to financial incentives, the ministry has raised the possibility of introducing new criteria that could lead municipalities into an assessment procedure. One possible criterion for an assessment based on the provision of services could be the number of children in a municipality.

Virsunen noted that criteria already exist for assessment procedures involving municipalities in financial crisis. Under the current criteria, such a procedure can eventually lead to a compulsory merger in a crisis municipality.

“The number of municipalities will decrease either through voluntary municipal mergers or assessment procedures,” Virsunen said.

He attributed the expected decline to population loss, municipalities’ financial situations and possible new service-related criteria currently under consideration.

Increasing merger grants would reduce municipalities’ state transfers, meaning the reform would not increase total costs. According to the Ministry of Finance, municipal mergers could produce savings of up to €220 million. The estimate is based on a reduction in the number of municipalities with fewer than 10,000 residents.

Virsunen said the ministry had no specific target for the number of municipalities and was not seeking to reduce the number of small municipalities in particular.

According to the ministry, the number of municipalities should decline to secure their operating conditions. In Finland, about 40 municipalities have fewer than 10 children born each year, which can make it difficult to provide lower secondary education. The financial outlook is also worrying in several municipalities.

Centre Party criticises plans

Centre Party leader Antti Kaikkonen has criticised the plans drawn up in government offices in Helsinki.

“This does look like an attempt to create fairly strong pressure towards compulsory mergers. The Centre Party does not reject municipal mergers as such, but decisions must be made locally, not dictated from the capital,” Kaikkonen said.

Kaikkonen also criticised the proposal to use money intended for municipalities’ state transfers to fund merger grants.

“It is not an ideal model, because the money would then be taken from other municipalities and cities. Municipal finances are already tight,” he said.

Kaikkonen said the Ministry of Finance’s proposal was not entirely unexpected, but noted that parties held very different views on municipal policy.

“There are probably also views that would want to flatten the entire municipal structure,” he said.

Ministry says proposal is about incentives

Virsunen stressed that the proposal concerned incentives for voluntary, proactive mergers. Ultimately, the decision would be political.

“If municipalities merge, they would receive incentives. If no mergers take place, the funds reserved for them would be returned to the state transfers,” he said.

Virsunen acknowledged that, given the current economic situation, municipalities were unlikely to receive additional money. With public debt at its current level, municipalities would probably not avoid further spending cuts.

“So it can certainly also be interpreted as meaning that economic policy could create pressure for different solutions,” he said.

In Virsunen’s view, the question was whether municipalities facing difficulties and considering mergers should be helped. Voluntary mergers initiated by municipalities had not taken place when incentives were small, he said.

“A municipality that ends up in an assessment procedure for financial reasons does not appear to be a very attractive merger partner for neighbouring municipalities,” Virsunen said.

Hollola manager says voluntary merger worked

Päivi Rahkonen, the municipal manager of Hollola in the Päijät-Häme region, has practical experience of municipal mergers. Hollola merged with the municipality of Hämeenkoski at the beginning of 2016, at Hämeenkoski’s request.

Rahkonen sees advantages in voluntary mergers. The merger did not lead to political disputes, and Hollola was able to take responsibility for financing social and healthcare services.

Hollola is not currently considering another merger, Rahkonen said.