Can't Pay, Won't Pay

Payback time. As reported in "The Bulletin" (17 August), the Council of Mallorca faces a likely demand from central government to pay back subsidies for road building that didn't happen and which were used for other purposes.

The Council faces an additional demand. The national finance ministry is owed 9.8 million euros by the Council. It is the shortfall between money that was paid on account by Madrid in the expectation that tax revenues generated by the Council would meet the estimate of this payment and would be handed over to the finance ministry.

This system of advance payment, a sort of cash-flow measure if you like, works only if the local authority is in a position to pay it back and only if the estimate was realistic in the first place. The estimate may have been realistic, in historical terms, but the demand for the 9.8 million relates to the year 2009. The year of crisis taking hold. Tax revenues plummetted.

The Council is far from being the only local authority which faces a demand for payment. The town halls of the Balearics are into the finance ministry for a total of 32 million euros. Palma owes 7.9 million, and the five largest towns in Mallorca after Palma - Calvia, Manacor, Llucmajor, Marratxí and Inca - all owe over one million euros; very nearly two million in Calvia's case. Of other towns, Alcúdia owes most - close to 800,000; Pollensa faces a demand for 350,000, Santa Margalida for 439,000. The only municipality that is owed by the ministry is Escorca - all of 1,600 euros.

How are the local authorities going to pay these demands? If they are all like Santa Margalida, they won't be paying. Its mayor says there isn't any money. Of course there isn't. One estimate of Santa Margalida's debt puts it at eleven million. The Council of Mallorca would seem to have little hope of handing over virtually ten million, not when it is technically bust and over 300 million in the red.

The demands have led to all manner of accusations as to where the blame lies. In Santa Margalida it is the fault of the previous Partido Popular-led town hall administration. For Manacor's PP mayor it is the fault of the PSOE socialist national government for not having reformed local authority financing. Pollensa's PP mayor says that central government got its sums wrong.

Wherever the fault lies, extracting repayments out of many town halls is going to be a tough call. Manacor, for example, faces, in addition to over a million being demanded of it, the unexpected cost (around one million itself) of complying with the idiotic demolition of the Riuet bridge in Porto Cristo. And it's not as though the towns can just wave their hands, plead penury and expect to not have to pay. Higher authorities than the town halls have been known to seek legal and financial redress from the municipalities and indeed from mayors for non-compliance with certain orders; as Antoni Pastor, Manacor's mayor, knows only too well.

What does the finance ministry do though? Does it withdraw advance payments and expect future tax revenues to cover the repayment? If so, then the town halls will be bankrupted. In addition to the debt which hovers over most of them are the constraints placed on them in respect of seeking credit. Tax revenues down in any event, how do they continue to function?

The system of public finance gives the impression of being close to collapsing. While there is a sense of chickens coming home to roost and of previous profligacy now being punished, this does nothing for assuring that public services are maintained. One ray of light in the mess comes from what Alcúdia's lady mayor has to say, that some formula will be worked out. It may well be, and it may well be that her colleagues in the PP nationally, if and when they assume office after the election in November, will find an accommodation. A question would be, what sort of accommodation? The PP is more minded to slash public funding than the current government.

Where the Council of Mallorca is concerned, its repayment burden simply adds to its precarious position and to its highly questionable viability. And what exactly was it doing spending state money on projects other than those for which the money was intended?

Perhaps this was it though. The Council, as with the town halls, had just looked upon the state as their sugar daddy and had expected that the good times would continue to roll along with the cash, whether fully accounted for or not. Unfortunately, daddy bet the house and lost, and the IMF and others have attributed Spain's financial troubles less to shaky banks and more to the amounts spent by regional authorities.

The local authorities can't pay and probably won't pay, and so Spain's financial woes just deepen.


Any comments to andrew@thealcudiaguide.com please.