In order to find a solution to the long-standing financial problems of Valka municipality, the Ministry of Finance (MoF) has called on the local government to change its current approach to budget and financial management, settle accounts with creditors, and pay outstanding taxes by June 1.
The Valka municipality believes that its homework has been done and that the austerity regime in the municipality is already strict, making it problematic to find new savings. The municipality has raised these problems many times, and, according to the chairman of the local council, Vents Armands Krauklis (Vidzeme Party), it is therefore incomprehensible that they have not been taken into account by the Ministry of Finance.
“The Ministry of Finance has used the data very selectively and has not actually assessed the fundamental problems that it is very well aware of,” Krauklis pointed out.
Valka municipality is one of the smallest in Latvia in terms of population, and the situation is further worsened by the fact that some residents have declared themselves residents of the adjacent Estonian city of Valga, which, according to Ilze Grandava, Head of the Municipality’s Accounting and Finance Department, significantly affects personal income tax revenues.
“The population taken as the basis for the calculation is 8,280, and if we were to add these residents declared in Estonia, the number would be 9,680,” explained a representative of the municipality.
The problem is also that many residents – around 500 – also work on the Estonian side and so their taxes remain in the neighbouring country.
“19% of the working-age population works in another country and does not bring any income to the municipality. 19%. Well, it is clear that it is a unique situation,” Krauklis reasoned.
The municipality also assessed that the belt-tightening and austerity regime in the region is quite strict and that saving anywhere else is problematic.
“If we are told to cut something, we don’t really have anything. We have practically survival budgets for all institutions, all departments. Positions have been reduced, vacancies are also unfilled, and partly because no one is applying for such salaries. It is very difficult to say where else we could save,” said Grandava.
However, Inta Komisāre, Director of the Department of Supervision and Financing of Local Governments at the Ministry of Finance, has a different opinion. “At the moment, we do not see this big improvement from such local government data.”
One of the conclusions of the report is about the disorganized provision of utility services, which causes losses to the municipality; the municipality has not collected residents’ debts for utility payments for a long time.
“We see that there are large utility payment debts, they are around a million, and these changes are insignificant,” explained the FM spokeswoman.
The municipality has its own explanation for these utility debts and now has an employee who collects the debts.
“The majority of the debt is more than 10 years old. And here is a table where we see a curve, what the situation is with the debts. We have been working, and you can see that in recent years the amount of debt has decreased. However, it is absolutely clear that in most cases it is impossible to recover debts that are more than 10 years old, or those that are, agreements are concluded with them for gradual debt repayment, because from our point of view, and I think also from the point of view of the state, it is much more correct that they make regular payments and in the last three years our utility payment discipline has been over 100%. So we have done our homework,” said the head of the municipality.
But what amount would the Valka municipality need right now to be able to carry out its functions? “So this year we are asking for a grant of 674,287 euros, which would allow us to pay out social benefits without any problems and solve some of the most pressing problems,” Krauklis admitted.
The Ministry of Finance believes that the problems in Valka are not due to the size of the municipality, but rather to inept financial management, which affects the performance of municipal functions, and therefore believes that an assessment by the State Audit Office is necessary.
“We have called on the State Audit Office to conduct this in-depth analysis, because it would be important to really understand the causes and how we can address them, and then work together to stabilize this situation,” said Komisāre.
The Valka municipality maintains its position that the location of the municipality, which, in Krauklis’s opinion, is special, should also be taken into account.
“Simply put, in the Valka municipality budget calculation, the number of residents of the municipality must be calculated with a coefficient, taking into account this number of residents. It’s an elementary action, nothing complicated, you just need political will,” said Krauklis.
The Valka municipality has been given until June 1st to sort out its financial affairs. If its response is deemed unsatisfactory, there is the option of inserting a temporary technocratic administration.
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