Budget Forecasts for Municipalities Revised Downward due to COVID-19 Pandemic

Luxembourg's Ministry of Finance and Ministry of the Interior have announced the downward revision of budget forecasts for municipalities in the context of the COVID-19 pandemic.

On Monday 20 July 2020, Minister of Finance Pierre Gramegna and Minister of the Interior Taina Bofferding exchanged views with the members of the Committee on Home Affairs and Equality between Women and Men on the situation of municipal finances in the midst of the coronavirus pandemic.

Finance Minister Pierre Gramegna detailed the various stages concerning the establishment of forecasts for municipal finances for the 2020 fiscal year. A first estimate was presented in October 2019 on the occasion of the draft budget of the state for the year 2020 and the multi-year budget for the period 2019-23, i.e. before the outbreak of the current crisis and before the availability of municipal budgets. The budget forecasts for local administrations were updated during the spring of this year following the inclusion of the planned expenditure in the budgets now voted by the municipalities. The aforementioned forecasts were finally updated in April 2020 on the occasion of the 2020 Stability and Growth Programme by fully integrating the effects of the COVID-19 crisis, which led to a major revision to the decrease in municipal revenues.

The 2020 Stability and Growth Programme thus foresees a deficit of €372 million for municipal administrations. 

Minister Pierre Gramegna commented: “The budgetary forecasts for the municipal finances for the 2020 financial year were established according to the usual procedures, taking into account the information and data available at the various deadlines. The time lag, together with the taking into account of the budgets [recently] voted as well as the appearance of an unprecedented pandemic, mean that the estimates concerning the municipal finances experience[d] a significant downward revision, of which the entities of the municipal sector have been transparently informed".

Interior Minister Taina Bofferding stressed that the municipal finance reform, which has been in force since 1 January 2017, has made it possible to solidify municipal finances. The latter benefit from various protective mechanisms. First, operating expenses must always be lower than operating income. Secondly, the final result of the budget, which consists of the ordinary bonus, the result of the extraordinary budget and the carry-over of the result from the previous financial year, must be positive. Thus, even if a municipality closes its 2020 account with a deficit, it has the possibility of absorbing it during the next budget.

"Faced with the concerns of the municipal authorities, to whom I assure my full understanding, I would like to reiterate that the Luxembourg municipalities will remain able to pay their current costs and answer for their debts", assured Minister Taina Bofferding.

Luxembourg's Interior Minister also expressed the desire to encourage municipalities to continue to invest, particularly in infrastructure projects. Consequently, the government has decided to increase the subsidies allocated by the Ministry of the Interior for community facilities, taking into account the financial situation of the municipalities.

Minister Taina Bofferding specified: "Investments from the public sector, state and municipalities must continue in order to stimulate economic recovery and contribute to the development of our society. Through subsidies linked to concrete projects, such as school infrastructures or public places, we encourage municipalities to maintain and pursue their planned projects”.