Mallorca town halls: Liquidity crisis because of spending rules

Works in Inca paid for with the budget surplus. | Ajuntament d'Inca

Andrew EdePalma05/09/2023 08:59

Since 2012, town halls in Spain have been subject to provisions of the Budget Stability and Financial Sustainability Law, often referred to as Ley Montoro after the finance minister at the time. Introduced as a consequence of the financial crisis, the law was designed to control town halls' spending. They aren't allowed to incur deficits and there are spending rules.

In Mallorca, the law has made life particularly difficult for town halls. This is because the population is increasing more than elsewhere in Spain. Ratios of police, schools and health centres per inhabitant have worsened as a result.

During the pandemic, the Spanish government temporarily relaxed spending rules and conditions for spending budget surpluses that town halls had been accumulating. The most publicised case was that of Alcudia, where the cash mountain sitting in banks had risen to some 90 million euros - cash that the rules made it very difficult to spend.

The relaxed rules haven't been formally extended, and town halls now face a situation whereby inflation has increased the cost of investment projects they have undertaken.

The mayor of Selva, Joan Rotger, speaks for many of the island's mayors when he says that not extending the relaxed rules would create great difficulty for the majority of town halls. "Practically all projects we have had under way for two years have required increased allocations." Use of cash from budget surpluses is required to meet the higher costs. "It's a matter of necessity. Without the surpluses we could face financial collapse."

Santa Margalida's mayor, Joan Monjo, says that if there is not an extension, "we will have a big problem". In 2019, the town hall's surplus was 18.6 million euros. Last year's accounts closed with 24.4 million in the bank. "If the spending rule hadn't been suspended, the amount in the bank would have risen even more."

In Alcudia, the surplus in the banks hasn't gone down. It has instead continued to grow. The former administration highlighted projects it had intended to carry out but put apparent inactivity down to a lack of personnel to prepare specifications for projects that it wished to execute with the surplus.

The new mayor, Fina Linares, says that twelve projects with a total value of 8.7 million euros have been budgeted for since 2021 but haven't been undertaken. The town hall is now "racing against the clock" in order to carry some of them out.

For Alcudia and many other town halls in Mallorca, the hope is that Madrid will maintain the relaxed rules. If not, the financial difficulties of overspending that the Ley Montoro was designed to address could be replaced by different ones - lack of liquidity.