Cost hike, lower revenue weaken municipalities’ finances

The municipalities’ finances weakened in 2018 mainly due to the increased operating expenses, lower tax revenue and central government transfers in tax funding, according to financial statements collected by Statistics Finland.

Particularly due to these, the annual contribution margin weakened by EUR 1.2 billion and was EUR 2.1 billion.

These data appear from the preliminary financial statement data of the statistics on local government finances, for which data were collected from all 311 municipalities and 140 joint municipal authorities in Finland.

According to the preliminary financial statement data, the local government operating margin amounted to EUR minus 29.2 billion in 2018. The operating margin weakened by EUR 985 million or 3.5 per cent compared with the actual financial statement data of the previous year.

Based on preliminary financial statements, municipalities’ operating expenses went up by EUR 1.2 billion or 3.4 per cent. They totalled EUR 37.1 billion. The increase in operating expenses was particularly affected by purchases of services growing by EUR 1.0 billion. Personnel expenses went up by EUR 134 million from the previous year. Operating revenue grew by EUR 345 million and amounted to EUR 7.5 billion, which was 4.8 per cent higher than one year before. The increase was particularly affected by growing sales revenue and other operating revenue.

The municipalities’ tax revenues decreased by EUR 118 million or 0.5 per cent from the year before. The drop in tax revenues was mostly due to the share of income taxes decreasing by EUR 166 million. Municipalities' share of corporation taxes decreased by EUR 23 million, but municipalities still received more other tax revenue than in 2017.

In all, EUR 45 million less central government transfers to local government were directed at municipalities, which was equivalent to a 0.5 per cent drop in the income item. Tax funding formed of tax revenue and central government transfers to local government was EUR 30.9 billion.

The lower tax funding and weaker operating margin mainly explained the EUR 1.2 billion weaker annual contribution margin than in 2017.The annual contribution margin was negative in 45 municipalities in 2018, while there were four municipalities with a negative margin the year before. The annual contribution margin covered 94.2 per cent of municipalities’ depreciations. The index was weaker than in the previous year, when the annual contribution margin covered 149.0 per cent of depreciations.

Municipalities’ total net investments amounted to EUR 2.8 billion in 2018. The increase from the previous year was EUR 411 million or 17.2 per cent. Municipalities' loan stock grew from the previous year by EUR 601 million, totalling EUR 16.8 billion. The loan stock was 3.7 per cent higher than in the year before. Calculated per inhabitant, the loans of municipalities were EUR 3,039. 3) Municipalities' equity ratio, which describes the ratio of equity to total capital, was 59.6 per cent. The ratio fell from the previous year’s 60.8 per cent.

According to preliminary financial statement data, joint municipal authorities’ combined operating expenses amounted to EUR 14.8 billion and operating revenue to EUR 15.4 billion in 2018. Compared with the actual financial statement data of the previous year, operating expenses went up by EUR 1.2 billion or 8.6 per cent. Operating revenue increased by EUR 1.1 billion, which meant a growth of 7.6 per cent from the previous year.

The annual contribution margin of joint municipal authorities weakened from the previous year by EUR 83 million and totalled EUR 591 million. Thus, the annual contribution margin was 12.3 per cent lower compared with the previous year. The annual contribution margin covered 95.9 per cent of joint municipal authorities’ depreciations.

Net investments fell by EUR 15.5 million from 2017 and amounted to EUR 1.0 billion. The loan stock of joint municipal authorities increased to EUR 3.9 billion during 2018, which translates to a 12.0 per cent growth from 2017.

According to preliminary financial statement data for 2018, the operating margin of municipal groups totalled EUR -27.0 billion. The operating margin was EUR 2.3 billion stronger than the operating margin of municipalities. The annual contribution margin of municipal groups weakened by EUR 1.2 million from the previous year and totalled EUR 4.8 billion. Municipal groups’ annual contribution margin was EUR 2.7 billion better than that of municipalities. In 2018, there were 13 municipal groups with negative annual contribution margins, while there were none in the year before.