An acceleration in community spending in 2024
Due in particular to the persistence of the direct and indirect effects of inflation, the operating expenses of communities (remuneration of agents, purchases of goods and services, benefits and social assistance in particular) increased by 5.4% in during the first eight months of 2024 (January to August) compared to the same period of 2023.
If this trend continues throughout the year, operating expenses would increase in 2024 by 2.9% after deduction of currently anticipated inflation, compared to 1.2% in 2023, while the law of public finance programming (LPFP) for 2023-2027 sets the objective of a reduction of 0.5 points per year excluding inflation between 2024 and 2027.
Investment spending by communities is also accelerating. Between January and August 2024, they increased by 13.1% compared to January-August 2023. In particular, municipalities and intermunicipalities are committed to carrying out their projects before the 2026 elections. With an unchanged trend, expenditure on Community investment would increase in 2024 by 10.6% after deducting anticipated inflation, compared to 1.7% in 2023.
An increase in the community deficit which compromises the objectives of the LPFP 2023-2027
Despite the acceleration in spending, the entities of the “municipal bloc” would maintain a solid financial situation in 2024, supported by the dynamics of property tax revenue.
The slowed growth in VAT revenue would contribute to a further decline in the situation of the regions. The continued fall in property transfer taxes, due to the downturn in the real estate market, will lead to a further deterioration in that of the departments.
After a €3 billion surplus in 2022, communities experienced a financing need of €5.5 billion (0.2% of GDP) in 2023, due to the acceleration in spending and the fall in DMTO.
The financing needs of communities will experience a considerable increase compared to 2023. Its order of magnitude could be transformed. The LPFP 2023-2027 objective of a strong local authority surplus in 2027 (€17 billion or 0.5% of GDP) is compromised.
Yet a justified contribution from communities to the recovery of public finances
Communities have an important role to play in restoring public finances.
In 2023, their spending represented 17.8% of public spending and 9.9% of GDP. However, the quality of local expenditure retains significant room for improvement, whether it concerns personnel expenditure (staff, working hours, absenteeism), purchases of goods and provision of services (management practices under -optimal), investments (unequal selectivity) or the integrating role of intermunicipalities (variable extent of sharing of administrative services and equipment between the municipalities which are members).
A contribution to be mobilized by slowing down community revenues
The Court proposes five structural measures to public authorities: better involve communities in decisions relating to the territorial civil service; make them contribute to the return to financial balance of the CNRACL (retirement plan for territorial and hospital civil servants); make intercommunal pooling schemes obligatory; rationalize state support for community investment in order to favor the ecological transition; distribute financial transfers from the State between communities based on contemporary population and wealth data, and no longer on past situations.
The Court proposes to communities two quantified savings measures: control their workforce, in particular by bringing them by 2030 to their level of the early 2010s (i.e. a reduction of 100,000 jobs or 5.5%, in six years) by not replacing a minority share of retirements, and generalizing the most optimal purchasing practices.
It also proposes to public authorities five other costed savings measures, which should encourage communities to mobilize their savings potential. Apart from more rigorous rules for depreciating their assets, the evolution of the operating expenses of communities could be slowed down by an increased moderation of their revenues: by putting an end to the automatic indexation on inflation of the value of premises housing subject to property tax; by extending the multi-year objective of changes in State financial transfers to all of them (while it barely covers a quarter of them); by limiting the increase in VAT and special tax revenues on insurance agreements to reallocate part of it to the State; by allocating part of the increase in VAT revenue to national resilience funds by category of community, with partnership governance with the State.
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