Borrowing by local and regional authorities Study Series Local and

Borrowing by local and regional authorities Study Series Local and Regional Authorities in Europe 47 Study Series Local and Regional Authorities in Europe Borrowing by local and regional authorities Report prepared by the Steering Committee on Local and Regional Authorities (CDLR) -2- This report is dedicated to the memory of Mr Gerrit Jan UHL, Director of Local Government Finance at the Ministry of Home Affairs in the Netherlands, who died prematurely. It is thanks to his goodwill, competence and efforts that it has been possible to present this report. The CDLR pays tribute to Mr UHL for his qualities as a convinced and active European. * * * -3- TABLE OF CONTENTS 1. 2. 3. INTRODUCTION........................................................................................................................................... 5 LOCAL GOVERNMENT CREDIT (Table 1) ................................................................................................. 7 FACTS ON BORROWING............................................................................................................................ 9 3.a 3.b 3.c 3.d 3.e 3.f 3.g 3.h 3.i 4. Legal restrictions on borrowing by local government on the capital market (Table 2)....................................................................................................... 9 Borrowing by local authorities abroad (Table 3) ..........................................................................17 Special restrictions in crisis situations on the capital or money market (Table 4) ...............................................................................................20 Privileges for communal credit (Table 5)......................................................................................24 Terms of loans (Table 6................................................................................................................28 Risks concerning communal credit - Provision of security (Table 7)..........................................................................................................................32 Legal restrictions for borrowing on the money market (Table 8) .................................................36 Freedom to invest surplus funds (Table 9) ..................................................................................41 Transfers from central to local government (Table 10)................................................................44 SPECIAL SITUATIONS, LOANS TO OTHER SECTORS AND GUARANTEES ON LOANS........................................................................................................................49 4.a 4.b 4.c 4.d Leasing (Table 11)........................................................................................................................49 Consortia of local authorities and financing of private companies ..............................................52 Granting or transfer of loans to third parties (Table 12)...............................................................55 Guarantees ...................................................................................................................................58 5. FINANCIAL DATA.......................................................................................................................................61 5.a 5.b 5.c 5.d Importance of capital expenditure of the local government sector (Table 13)...........................................................................................................................61 Financing of capital expenditure of the local government sector (Table 14)...........................................................................................................................65 Financing of capital expenditure of the local government sector by long-term borrowing (Table 15) ....................................................................................69 Composition of the debt of the local government sector (situation from the annual balance sheets) (Table 16) ................................................................73 RECOMMENDATION TO THE COMMITTEE OF MINISTERS ON BORROWING BY LOCAL AND REGIONAL AUTHORITIES...............................................77 APPENDIX: -4- -5CHAPTER 1 INTRODUCTION This report has been prepared by the Steering Committee on Local and Regional Authorities (CDLR) in implementation of the activity "borrowing by local government", included in its work programme. The report is based on the answers to a questionnaire, prepared by the Netherlands delegation, which was sent to the member countries of the Council of Europe. Answers were received from Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom*. The main results will be presented in this paper. In April 1990 the International Centre for Communal Credit held a meeting in Vienna, where a paper was presented by the German Central Giro Institution and German Communal Bank, which deals in large part with the same theme. Some of the information, with the consent of the International Centre for Communal Credit, is included in this document. The information has been updated by the CDLR. The main purpose of this report is to provide information on the different aspects of borrowing by local government in the member countries of the Council of Europe. All answers concern borrowing by local and regional authorities. The CDLR considers that this report can help the governments in updating the rules concerning their financial markets. The tables in Chapter 5 compare the figures on financing local government in the various countries. It is recalled that, in 1980, the Steering Committee for Regional and Municipal Matters (CDRM) published a report on local authority access to national and European capital markets (CDRM (80) 50, Addendum VIII). More facts are found in the report presented by Dr. D. Colin to the Standing Conference of Local and Regional Authorities of Europe in 1984 on Borrowing by local and regional authorities in Europe (CPL (19) 4, Appendix). To conclude its work, the CDLR proposed to the Committee of Ministers for approval a draft recommendation to member States on borrowing by local and regional authorities. The recommendation, adopted by the Ministers' Deputies at their 472nd meeting (March 1992), is reproduced in the appendix. ---------* Great-Britain replies relate to England. Nearly all are also correct for Wales. There are greater differences in Scotland, which has a separate legal system. In Northern Ireland, local authority functions are very limited and generally different rules apply. -6CHAPTER 2 LOCAL GOVERNMENT CREDIT In this report, when the wording "capital market" is used it refers to the market for loans for one year or more. The term "money market", which is equal to short-term market, applies to all transactions for less than one year. The following table (Table 1) is derived from the questionnaire of the International Centre for Communal Credit. Borrowing by central and regional government is often identical to communal credit, or to credit granted to associations of local authorities. -7- -8- CHAPTER 3 FACTS ON BORROWING 3.a Legal restrictions on borrowing by local government on the capital market There are several ways to restrict the borrowing of local and regional authorities. The analysis will concentrate first on transactions on the capital market (in this document the market for one year and over). The controls can be in the law (for instance, the law on financing local government, the municipality law, or the law regulating banking activities) or can be based on a decision by the Minister of Finance, the Minister of the Interior, a body supervising the municipalities, a special local government bank or the central bank. The scope of the regulations can be different according to the applications for the loans: for instance, loans from the capital market can only be spent on capital investment, special regulations for loans on housing, the powers to borrow abroad can be restricted, or only loans in the national currency are permitted. The terms of the loans (level of interest rates, relation between the estimated life of the asset and the loan) can also be regulated. Sometimes the institutions which should be used are specified (central government, special banks, etc). In all of the countries examined, local government borrowers are allowed on the capital market (see Table 2). In certain countries, no approval is required. In other countries approval by the Minister of Finance is needed. In most countries there is some type of control, mostly regulating that loans can only be used for investments or be taken from a specific institution. -9- - 10 - In Austria, legal restrictions on borrowing on the capital market are laid down in the local government acts, the local government finance acts (of the "Länder"), municipality acts and also in the financial constitution law from 1948. Borrowing is subject to the conditional approval of the supervising authorities of the "Länder". Exemptions from this rule are made for: short-term liquidity loans: no permission is needed, if the loans do not exceed a certain amount of the current account (f.e. 1/6) loans from public bodies and funds in some Länder there is no obligatory approval for the contract of a long-term loan up to a certain amount of the current accounts. Loans may only be taken up within the investment budget and in accordance with the financial capacity of the local authority. There are two types of criteria for judging the financial capacity: relation between loan and current accounts surplus of current receipts to current expenses Borrowing in bonds also has to be approved by the Ministry of Finance. The approval of the supervisional authorities might be considered as a measure to guarantee the financial capacity of local authorities in a long-term respect. There are no special restrictions concerning macro-economic aspects such as stability or inflation. Theoretically, supervisional authorities can use the instrument of the approval for the reasons mentioned above: Art. 13 (2) of the federal constitution lays down that "the federal state, the "Länder" and the local authorities have to strive for a state of macro-economic equilibrium..." It should be mentioned that the right of local self-government is laid down in the federal constitution. Nevertheless, the instrument of the approval of the supervisional authority provides a high degree of control. In Belgium, municipalities' bond issues still in circulation at 31 December 1990 totalled only 70.3 million Belgian Francs. This means of financing, much used in the recent past (almost 30,000 million Belgian Francs at the end of 1984), has thus become highly marginal. There is an explanation for this. Until 1981-82, the municipalities of Antwerp, Brussels, Ghent and Liège traditionally financed a large part of their investments through direct use of the capital markets. Some of them had also managed to cover their current management deficits in this way. The increasing trend in this direction in the late seventies placed these municipalities' finances in jeopardy, and in 1981, the financial sector as a whole considered that it was no longer possible to sell such issues. It was therefore the Crédit Communal de Belgique S.A. which made issues on behalf of the municipalities in 1981-82. - 11 It was then that the Fonds d'Aide au Redressement financier des Communes (a fund established to foster the financial recovery of municipalities) was set up to help towns to meet their commitments arising from previous public loans and, in more general terms, to enable the towns concerned to stabilise their finances. The Fund, initially set up by the state to enable all the major cities to stabilise their finances, and subsequently extended to the municipalities in the Brussels area, pre-finances municipalities' financial commitments in exchange for the payment of future annual instalments, thus consolidating and staggering the debt. The Fund is financed through public issues and private loans. The Crédit Communal de Belgique S.A. has, with the other financial intermediaries, acquired some of these loans, thereby further increasing its total - direct or indirect - intervention in the funding of the local government sector. In the Flemish region, the supervising authority controls whether the financial decisions are in accordance with the law and not against the public interest. By law, loans are only permitted for investment purposes and are to be taken up from financial institutions for the public sector (Gemeentekrediet, Algemene Spaar- en lijfrentekas, Nationale Maatschappij voor Krediet aan de Nijverheid). Permission from the national Minister of Finance is needed, although this rule has been broken in the past. Special arrangements are made to redress the situation of the cities which have gotten into financial difficulties due to loans abroad. In Denmark, according to section 55 of the statute concerning municipalities, the Minister of the Interior is able to lay down regulations on borrowing or the like by local government. They are laid down in regulation no. 496 of the Ministry of the Interior of 30th June 1989. From this it is evident that counties, as a matter of principle, are not allowed to borrow. Municipalities are not allowed to borrow, except for investments in water, electricity, heating, urban renewal, housing for elderly people and acquisition of land. The expenditure in these fixed assets makes the "borrowing ceiling" of a municipality. The "borrowing ceiling" is available for other purposes, if the municipality does not borrow for the said purposes. Loans other than those mentioned need permission from the Ministry of the Interior; there is an annual amount of 200 million d.kr. available for such loans. Loan guarantees, renting and leasing are considered to be borrowing by the municipality. The rate of interest is free, but the municipality is committed to raise loans on the best terms on the market. The term of domestic loans cannot exceed 30 years, except loans raised to finance the housing of elderly people. Loans raised abroad cannot be raised for a term exceeding 20 years. There are no restrictions issued by the central bank or other ministries or institutions. In Finland there are no restrictions. In France, the French Act of 2 March 1982 on the rights and freedoms of local authorities abolished the system of prior authorisation and all a priori supervision of the decisions of local authorities, which are therefore enforceable automatically, in the area of borrowing as in other fields. Thus, the local authorities may freely contract loans on the terms and conditions they have negotiated with the lender of their choice. - 12 The only remaining constraints are those dictated by ordinary law. The local authorities continue to be subject to the general rules applicable to all borrowers, which concern in particular usurious rates of interest, public savings programmes subject to authorisation above a certain level and foreign currency loans, the rules for which are broadly the same as those governing foreign exchange. In Germany, a distinction is made in the provisions governing the credit system of local authorities between longer-term loans for investment and rescheduling purposes and short-term liquidity loans. Local authority borrowing is subject to legal provisions of the Länder Ministers of the Interior, who are responsible for the legality of measures. Borrowing is permissible if another way of financing is impossible or economically inexpedient. Loans may only be taken up within the real estate or investment budget, for investment purposes or rescheduling of loans, in accordance with the financial capacity of the local authority. Loans, except for liquidity loans, must be approved by the supervisory authority. Overall approval or conditional approval is possible. In Great Britain, the system of capital finance for local authorities, since 1 April 1990, is regulated in Part IV of the Local Government and Housing Act 1989; further detailed provisions are contained in the Local Authorities (Borrowing) Regulations 1990 (SI 1990 No. 767). Within the controls on the level of borrowing, a local authority may borrow money for any purpose relevant to their functions under any enactment, but except with the approval of the Secretary of State given with the consent of the Treasury, a local authority may not borrow money in any manner other than: a. b. c. by overdraft or short term from the Bank of England or from a body or partnership which, at the time the borrowing is undertaken, is an authorised institution within the meaning of the Banking Act 1987; or from the National Debt Commissioners or from the Public Works Loan Board (PWLB); or by means of a loan instrument. Through the use of credit approvals which are issued annually by the Government, a limit is set on the amount which a local authority may borrow. The limit includes an allowance for temporary borrowing to meet cash flow differences and is based on the amount of credit approvals used to finance past capital expenditure less provisions to meet those liabilities. The Borrowing Regulations make provision as to the terms of loan instruments, the manner of their issue, transfer and redemption, and the way in which payments or repayments are to be made to the holder of an instrument, and they also make provision as to the keeping of a register of loans. The regulations also impose quantitative limits on the issue of specific loan instruments. - 13 In Greece, articles 220-221 of the Municipal and Communal Code (Presidential Decree 323/1998) provide local authorities with the possibility of raising loans. According to the above-mentioned Presidential Decree, "municipalities and communities have the possibility of contracting loans with the state, credit institutions (Greek banks, European Investment Bank and other foreign banks), public law bodies (Deposit and Loans Office and borrowing funds), with any other public institutions for the carrying out of any task within the frame of their responsibilities". The Municipal and Communal Code, in Article 220, stipulates that in order to contract a loan, after decision of the municipal or communal council, the purpose, the conditions and the annuity have to be indicated. In order to contract a loan for the execution of works or supplies, an initial study or a final one of the works or supplies for which the loan will be contracted has to be elaborated and approved by the competent agents. The loan cannot be used for purposes other than the one for which it was contracted. The loan or part of it can be used for the execution of another work, after justified decision of the municipal or communal council. The guarantees for the contracting of loans are given after joint decision of the Ministers of the Interior and Finance on the proposal of the Prefect. The guarantee can be given under terms regarding duration, conditions for the allocation and paying off of the loan, and security offered by the municipality or community which is borrowing. In Ireland, all local authority borrowing is subject to the approval of the Minister of the Environment. Under the Local Government (No. 2) Act, 1960, the Minister for the Environment may, after consultation with the Minister for Finance, make regulations in relation to borrowing by local authorities and such regulations may, in particular, make provision with respect to all or any of the following matters: a. b. c. d. sources of loans periods for repayment of loans charging of and security for loans in the case of mortgages, the form thereof, the registers to be kept in relation thereto, the transfer thereof and the form of such transfers and the appointment and powers of receivers. In Italy, municipalities, provinces and related firms are prohibited by law from subscribing loans. They may contract loans only with the Deposit and Loans Office and the General Direction of Security Institutes of the Treasury Ministry. Should they have no available funds, local bodies may apply to different institutes. Such loan contracts must be stipulated in a public form and include some clauses, eg extinction in a period no shorter than 10 years; depreciation installments including, from the first year, capital and interest shares. If these conditions are not complied with, the contracts will be declared null and void. In order to standardise the treatment, the Treasury Ministry determines by decree the highest rates applicable to loans to be granted to local bodies. - 14 In the Netherlands, the restrictions on borrowing on the capital market can be found in the Municipalities Act (art. 242), the Province Act (art. 127) and in the Local Government Loan Conditions Decree (based on art. 6 of the Local Government Finance Act). From the Municipalities Act (Province Act) it can be derived that the budget of the municipalities (provinces) will only be approved if the current account is balanced. This means that borrowing is only possible as long as interest payments and depreciation are accommodated within a balanced current account. The Local Government Loan Condition Decree states in art. 3 that loans must not be denominated in a foreign currency or be linked with a foreign currency. Furthermore, this Decree embodies a number of specific regulations for long-term loans, such as: early redemption of long-term loans has to be possible after a maximum period of ten years. In case of contracts which allow creditor and debtor to determine a new interest rate during the term of the contract, early redemption may be postponed up to ten years after the interest rate adjustment; the interest rate of a loan is not allowed to be altered more than once every ten years; the principal must not be subject to any type of indexation. - In Norway, all loans, except those of little importance, must be approved by the state authorities. The manner and period of amortisation are also subject to approval. Restrictions regarding local government raising of loans are laid down in the Local Government Act. These restrictions are: market. Local authorities are allowed access to the capital market. They may issue bearer bonds in accordance with the general law and contract medium or long-term loans. The Central Bank imposes no restrictions on debenture loans beyond the general requirements imposed on anyone resorting to this means of funding. The municipality must therefore submit requests for a debenture issue to the approval of both the deliberating body - the municipal council - and the Ministry of Finance. borrowed money, broadly speaking, may only be used for investment purposes; the relation between loan, amortisation and current income is stressed. In Portugal, the Local Finance Act 1987 lays down certain legal restrictions on borrowing on the capital - 15 Medium and long-term loans may only be contracted for investment purposes or to redress financial difficulties. Annuities (in addition to those for debenture loans) may not exceed 25% of the Financial Equalisation Fund or 20% of the municipality's annual investment expenditure. Local authorities may contract bank loans with any institution legally entitled to make loans. Loans contracted with private institutions may not incur higher costs or repayment obligations than those resulting from loans contracted for the same purpose with public sector banking institutions. The Treasury may act as lender. In Spain, all restrictions in force come under Law 39/1988, passed in December, governing Local Finances. In general, authorisation by a competent body of the Finance Ministry will be needed for granting loans or endorsements. An exception is made where the statutes of the Autonomous Community to which the local authority belongs award the local authority competence in the matter. In such a case, it will be up to the Autonomous Community to authorise the loan. Exceptions are made: where the sum involved in the planned operation does not exceed 5% of the authority's total current expenditure. These resources will be subtracted from the final budget settlement; where the loan is intended to fund works and services included in provincial projects and local and economic co-operation programmes which have been duly adopted. Authorisation will not be needed where annuities on all of the local authority's current and projected operations do not exceed 25% of the authority's total resources. Long-term loans are only authorised for investment purposes and may not cover current expenditure. As regards foreign credit operations and the issue of debts or other types of securities, an authorisation from the Ministry of Finance and Economy is needed on a case-by-case basis. The issuing of such securities will be subject to Part III of the Law on Security Market (Law 24/1988 of 24 June). Where loans depend on the issue of securities, they will be subject to the provisions of Part III of Law 24/1988 of 24 June. Authorisation will depend on the economic situation of the petitioning local authority, the period of amortisation, the profitability of the proposed investment, and a whole host of conditions on the loan. In Sweden, there are only legal restrictions on two points concerning local government borrowing. The restrictions have reference to the Local Government Act. According to one provision the local authorities may not take up loans on mortgage on their real estate. That means that the local authority's entire property and tax basis shall be on security for the loans. The second restriction means that the local authorities are in principle obliged not to take up loans for current expenditure. It is, however, considered that they may take up temporary - 16 - loans to get working capital and, in a difficult economic situation, cover working expenditure with short-term loans. In Switzerland, local authorities can borrow money according to cantonal legislation. The general limitation is that borrowing is limited to capital expenditure, and therefore for longer periods. However, Local Authorities may use short-term borrowing for current expenditure. Local authorities are free to choose where they borrow money. For smaller amounts they usually take bank credits, for higher amounts they contract loans through national social security organisations or on the capital market. 3.b Borrowing by local authorities abroad In most countries borrowing abroad is possible (see Table 3). In practice, there may be some extra restrictions, like the choice of borrowing currency, maximum amounts or forms of financing. In only one country is security provided. - 17 - - 18 - In Austria, according to the financial constitution from 1948 borrowing in a foreign exchange is subject to the approval of the Ministry of Finance. This exchange control regulation might be dismantled sooner or later. In Belgium, from the macro-economic point of view, local authorities' borrowing in currency has never reached a significant level. The last currency loan taken out by a municipality (in Swiss Francs, to be precise) reached its maturity date in January 1989, so at the time of writing there are no municipal foreign currency debts. It should be noted that the extraordinary assistance loans granted by the Crédit Communal de Belgique S.A. on the initiative of the French-speaking Region in 1981 and 1982 were financed through loans in German Marks and Netherlands Guilders. However, the municipalities received Belgian Francs, but there was machinery by which they themselves covered any exchange losses. Loans from abroad have been largely repaid since then, refinancing being provided by the Crédit Communal de Belgique S.A. in Belgian Francs at the market rate. In Denmark there is no restriction concerning where municipalities are able to raise loans. This means that they are free to raise loans abroad. In France, the rules governing such loans, as set out in a circular by the Minister responsible for the economy, dated 21 May 1987, are based to a large extent on the rules governing foreign exchange. In Germany, in principle, local authorities may borrow abroad; the supervisory authorities recommend, however, refraining from doing so to the largest extent possible. When loans are taken up abroad there is an obligation to open a cash deposit, ie for loans exceeding a certain amount (eg DM 50.000) local authorities must have a cash deposit with the Deutsche Bundesbank. Furthermore, borrowing abroad is conditional on approval by the Deutsche Bundesbank (Foreign Trade and Payments Regulation 52, para. 1, No. 4). In Great Britain, a local authority may not, without the consent of the Treasury, borrow from a lender outside the United Kingdom or otherwise than in sterling. In practice, local authorities seldom borrow in foreign currency except in connection with EC schemes. Borrowing from a UK branch of a foreign bank is possible if the branch is a subsidiary incorporated in the United Kingdom and authorised under the Banking Act 1987. In Ireland, local authorities do not, in practice, engage in foreign borrowing. In the Netherlands, borrowing abroad is allowed only in guilders. There is no obligation of borrowing through the Municipality bank. - 19 In Norway, local authorities are not allowed to borrow in foreign currency. However, they may borrow abroad in Norwegian Crowns. Companies owned by municipalities/counties may have access to foreign currency if they are organised as stock companies. The Ministry of Finance can make exceptions to the regulations. The reason for the restrictions is an assumption that local authorities are more exposed to losses due to fluctuations in currency than central governments. In Spain, local authorities require the approval of the Ministry of Finance before borrowing abroad, in addition to the one delivered by the Autonomous Community where the statute of the Autonomous Community to which the local authority belongs grants the local authority competence in the matter. A cash deposit must currently be deposited with the central bank in the case of credit obtained abroad. The Governor of the Bank of Spain may also issue circulars on borrowing abroad. The Inter-Ministerial Committee on foreign borrowing may recommend deferment or even suspension of operations for currency funding, according to the state of internal liquidity and the success of monetary policy. In Sweden there are no such restrictions. In Switzerland, borrowing abroad is admitted. Switzerland, local authorities have rarely borrowed abroad. 3.c However, due to the competitive interest level in Special restrictions in crisis situations on the capital or money market The following table (Table 4) gives information on the restrictions to borrowing in cases of crisis situations on the capital or money market. This information is based on the decisions taken during the period 1980-1990 by States having replied to the questionnaire. - 20 - - 21 - In Austria, no mechanisms for regulating access to the capital market for macro-economic reasons have been applied at all. In Belgium, following the disastrous consequences of borrowing abroad, the regional ministries which exercise supervision over the decisions of the municipalities no longer allow the latter to engage in such operations. A crisis on the capital markets therefore has no direct effect on the Belgian municipalities. In Denmark, the Ministry of the Interior issues permits to raise loans up to a total annual amount of 200 million d.kr. added to the general borrowing ceiling of local authorites. In a crisis situation with overheated capital markets, the amount could be reduced. In Finland there are no regulations. In France, the local authorities are subject to the general rules concerning the capital and money markets. They therefore have to put up with the restrictions imposed in this field by the Minister responsible for the economy and the central bank. In Germany, in accordance with the Law on the Promotion of Economic Stability and Growth (para. 19), restrictions may be put on borrowing by local authorities by means of an ordinance having the force of law issued by the Federal Government, if a disturbance of overall economic stability is to be prevented or averted. The Federal Government ordinance may put a ceiling on borrowing: furthermore, for loans of a special kind or amount, a schedule and loan terms may be prescribed. The ceiling on loans may be put at 70% of the loans the local authority has taken up on average in the last five years statistically recorded. The amount thus released may be transferred to other local authorities. As soon as a restriction on borrowing has been issued under para. 19 of the Law on Stability and Growth, the taking up of individual loans, whose sum total has already been approved, is subject to approval by the supervisory authority. In the case of crisis situations on the money and capital market, the following provision is applicable; if the situation on the capital market threatens to deteriorate (by taking up too much credit or by a development of credit terms that is negative under aspects of the overall economy), local authority borrowing may also be made conditional on the approval of the supervisory authority (individual approval) by means of an ordinance of the Land government. Approval may be denied where credit terms might unfavourably influence the development on the money and capital market or where they might interfere with the supply of the local authorities with loans justifiable under economic aspects. In Great Britain, section 44 of the Local Government and Housing Act 1989 gives the Secretary of State power to introduce regulations to apply further controls on borrowing by local authorities. As the new system of capital finance was only introduced in 1990, it is not possible to give details of previous use. The Bank of England also has powers to control the timing and amounts of local authority issues of certain negotiable instruments such as stocks and bonds. - 22 In Greece and Ireland no special controls apply, as local government loans are always subject to an authorisation process. In Italy there are restrictions by the Banca d'Italia. In the Netherlands in a crisis situation, that is if the Minister of Finance is convinced that a balanced development of spending is disturbed or threatened, it is possible to decree that local authorities can only contract loans or give guarantees up to a certain total amount fixed in advance for each category (municipalities, provinces, water control boards and consortia of these public bodies) and for a certain period. This means that if a public body wants to contract a long-term loan or give a guarantee it has to send in a request (Local Government Finance Act, art. 7). The above-mentioned crisis situation did not occur in the period 1980-1990. Net floating debt is limited to the so-called cash limit, which is a percentage - different for each category - of the long-term loans, reserves and guarantees. When, from a macro-economic point of view, monetary financing by local government is rising too fast, it is possible - at short notice - to restrict monetary financing by local government. This is done by a temporary lowering of the cash limit percentages. In the period 1980-1990, this instrument was not used. In Norway there is no mechanism for crisis situations. In Portugal, the government has established machinery to control credit, setting ceilings for each institution. However, measures to liberate the markets have just been applied and the control machinery is not yet in operation. An overheated market and inflation have pushed interest rates up to a very high level. In 1988, owing to inflation, the government fixed interest rate rebates in relation to a predetermined interest rate for local authority loans. This meant that, should interest rates increase, the state burden would remain the same and the interest rates borne by the municipalities would increase, in turn lowering the funds available to them. In Spain, according to the given circumstances and economic policy, the General Laws on the State Budgets may fix, on an annual basis, overall limits on local authorities' access to loans. The Bank of Spain occasionally issues circulars and sets restrictions on external debt, applying to Local Corporations. A decree adopted in November 1990 requires that a compulsory interest-free deposit be made with part of the amount to be lent outside of the country. In Sweden no mechanism of this type exists. In Switzerland, the cantons give a guarantee for local borrowing according to federal law. Except for the world-wide recession before World War II, such guarantees were not used. - 23 - 3.d Privileges for communal credit In most of the countries included in the survey (see Table 5), no privileges exist concerning local government borrowing. In Switzerland some cantonal laws on the cantonal banks provide for preferential treatment of local authorities. However, the difference compared to other credits is very small. In the majority of countries, when loans are granted, there is a leader in the form of either an institution or the banks of a particular sector (e.g. the savings banks). - 24 - - 25 - In Belgium, provincial and municipal authorities, including public social assistance centres, municipal administrations and intercommunal associations, may turn to the financial establishment of their choice to borrow capital. However, municipalities and provinces are the only shareholders in the Crédit Communal de Belgique, which thus occupies a preponderant position in the financing of this sector. The board of management and the general assembly, where the municipalities are represented as shareholders, set the standards for the loans. The Federal State, the Regions and the Communities pay into the provinces' and municipalities' accounts at the Crédit Communal tax revenue earmarked for them, together with the staff, running and investment grants due to them. The Crédit Communal is able to provide its public customers with certain administrative services (e.g. for drawing up their budgets and their long-term programming) that other banks, public or private, are not in a position to do. In Finland, for small municipalities, the savings and co-operative banks are the market leader (including the Postbank owned by the state). For the cities the most important role is played by commercial banks. In France, since the abolition in 1987 of the French Caisse d'aide à l'équipement des collectivités locales (CAECL) (loan fund for the equipment of local authorities), a public institution responsible for granting loans at preferential rates to local authorities, the latter have enjoyed unrestricted access to credit under the conditions laid down by ordinary law. All lenders are therefore in a competitive situation. There is one particular body, however, which may be considered a benchmark institution: the Crédit local de France (local credit institution). The capital of the former CAECL was transferred to the Crédit local de France, which enjoys the status of a private law limited company, even though most of its capital (50.5%) is held by public corporations. The Crédit local de France has no preferential source of funds, and has to finance itself under the same conditions as other banking institutions. The Crédit local holds about 60% of outstanding local government debt. In Germany, local authorities may borrow from any bank. There is no obligation to borrow exclusively or primarily from the Central Bank or special financial institutions. In the Federal Republic of Germany, savings banks ("Sparkassen") play a special role as grantors of credit to the local authorities. The major part of the savings banks are run as non-profit-making public institutions of the "Gemeinden" or "Kreise", ie the local authorities. In Great Britain, currently about 80% of local authorities' borrowing is from the Public Works Loan Board (PWLB). Control of borrowing from this source is achieved by way of quotas. For example, in 1990/91 the quota normally available to each authority was 75% of capital payments during 1990/91 plus 4% of debt incurred for capital purposes and outstanding on 31 March 1990. - 26 In certain circumstances authorities may borrow funds from PWLB which are in excess of their quota, but these loans would be subject to a higher interest rate. In Greece, the main credit agent of local authorities is the Loan and Consignment Fund. This Fund grants loans under certain circumstances to local authorities, at a lower interest rate than the private capital market. The Loan and Consignment Fund is a special credit unit in the service of the public interest; it is not a speculative enterprise. The allocation of grants from the Loan and Consignment Fund to local authorities (municipalities, communities, associations, enterprises of local authorities, public enterprises for water supply, sewerage) are submitted to the provisions of the P.D. 256/1984 together with the decisions of the National Bank of Greece (Central Bank). For the allocation of grants the following is taken into account: 1. 2. 3. 4. services. The question does not apply to Ireland and Italy. In the Netherlands, the Dutch Municipality Bank, owned jointly by local and central government, provides loans. There are no restrictions on applying to other institutions. In Portugal, local authorities may borrow from any bank. However, most loans are raised with the General Deposit Bank (savings bank) which, in certain circumstances, grants loans to local authorities with a lower interest rate than the private money market. In Norway the Norwegian Municipalities Bank, a government bank, provides loans to municipalities. There are no restrictions on borrowing from private institutions. In Spain the Local Credit Bank acts as a market leader, granting almost 60% of all bank credits. In Sweden there are no such obligations. The amount of the investment and its duration. The financial situation of the local authority concerned (possibility of the allocation of grant). The decisions of the National Bank of Greece about the control of the money market. The guarantees given (incomes, guarantees of third persons, mortgage). The Loan and Consignment Fund manages the capital of local authorities that do not have their own cash - 27 - 3.e Terms of loans The situation varies in the different States (see Table 6). In several countries certain conditions must be met, mostly concerning the form of redemption, the term of the loans or the currencies in which the loan is contracted. The guidelines on individual credit are often laid down in local regulations. In several countries the details of each loan must be approved by the supervisory authorities. - 28 - - 29 - In the Netherlands and in Germany borrowing is restricted to the local currency. There is no fixed relation in Austria between the estimated life of the asset and the loans. In many cases the credit period corresponds to the life of the asset. It is possible to convert loans to new conditions. They are also subject to the approval of the supervisional authorities. In Belgium, the only restrictions are those set and imposed by the financial establishment granting loans to the municipality. Even where the municipalities pass on the borrowed funds to third parties, the financial establishment may only turn to those municipalities when payment of principal and interest is due. The Crédit Communal only grants a loan if it is duly guaranteed. The guarantee takes the form of a delegation on the ordinary receipts held in the account of the local authority contracting the loan. The period of the loan may not exceed the useful duration of the investment and generally varies from 3-30 years. On 3 September 1986, the Board of Governers of the Crédit Communal took a decision of such importance that the press described it and commented upon it at length: the general and unilateral reduction of interest rates applicable to long-standing loans granted to the public sector, an outstanding debt totalling 450,000 million Belgian Francs. This was a quite exceptional move without precedent or equivalent in the Belgian world of finance. In Denmark, there are no regulations concerning the term of a loan in relation to the estimated life of the asset. For domestic loans, the maximum authorized term is of 30 years; for foreign loans, there is a maximum term of 20 years. Municipalities are generally allowed to convert old loans on condition that the sum of the new terms observes the original limit on terms, irrespective of the number of times the loans have been converted. Furthermore each conversion must be set out in the accounts, and the proceeds of the new loan are applied in full for the repayment of existing loans. In France, the freedom of the local authorities to contract loans means that there are no specific guidelines and that the terms of the loan are decided freely by agreement between the lender and the borrower. In Germany, there are no restrictions on redemptions, but the statutes on the powers and organisation of local authorities contain various provisions for the redemption of loans. Agreements on the redemption of credits have to be geared to the financial and economic interests and capabilities of the local authority. In addition, it is recommended that long-life assets be financed on a long-term basis. That is why, in such cases, long-term maturities should as a rule be agreed. Local authorities are to endeavour that, as a rule, the maturity of the loans coincides with the estimated life of the asset (object of investment) for which the loan is issued. Loans may be converted to new conditions (rescheduling of debts). It is not permissible, however, to take up new loans for ordinary redemptions. Thus a rescheduling of debts may only be considered where the redeeming loan has better terms than the loan to be redeemed. Rescheduling must not lead to the maturity of the loan being extended. - 30 - In Great Britain, authorities are free to negotiate or renegotiate the terms of loans. Debt is managed corporately and loans are in general not earmarked to particular assets. The total amount of credit of local authorities is controlled, but not the terms of individual loans. Borrowing on index-linked terms is effectively precluded. In Ireland generally, the length of loan repayment is linked to the life of the asset. In the Netherlands generally long-term loans will be contracted for the financing of investment projects with a long depreciation period. However, it is possible to contract loans with a shorter duration, and even short-term. Most larger municipalities (>150.000 inhabitants) have a loans fund, which usually means that there is no direct relation between a contracted loan and a certain investment project. Municipalities with a loans fund have the possibility to contract long-term loans at regular intervals, or can contract large long-term loans when the interest rate is relatively low. As long as they contract enough loans to pay for new investments and for (early) redemptions, they have a large degree of freedom to determine when to contract loans, for what amount and for what period. The relation between the loan and the estimated life of the asset gets more distinct the larger the asset and the smaller the municipality. If, for instance, a small municipality wants to build a new town hall, the relation between that project and the long-term loan necessary for the project will be clearly visible. It is possible to convert an existing loan into a new one, or to change the interest rate of a loan once every ten years. According to the Local Government Loan Conditions Decree, early redemption of long-term loans has to be possible after a maximum period of ten years, unless the contract allows creditor and debtor to determine together a new rate of interest. In that case, early redemption may be postponed up to a maximum of ten years after the interest rate adjustment. If a loan is redeemed early, a penalty usually has to be paid. This penalty must not exceed a certain percentage of the amount that will be redeemed early. The percentage is linked to the remaining term of the loan at the moment of early redemption, and can never exceed 5%. Index-linked loans or floating-rate loans are not allowed for loans with maturity of 10 years or more, which are - due to the cash limit on floating debt - the bulk of loans taken up by local authorities. Norway has maxima fixed for the duration of loans. Forty years is the maximum for revenue-earning investments. Within these limits, importance is also attached to the estimated life of the asset in question. Twenty years is the maximum for investments that are of lasting value. Loans may be converted, but only within the total duration maxima here mentioned. - 31 - In Portugal, loans contracted by municipalities for investment must have a duration in keeping with the nature of the purpose of the loan and, where the case arises, they may not exceed the useful life of the investment or the period of recuperation of financial costs which result from them. In Spain, there is no automatic link between the loan and the estimated life of the asset in question, even though such a condition could be imposed by the supervisory authorities when the authorisation is delivered. The Law allows for a loan to be granted by rescheduling or partially or fully replacing the existing operations. In Sweden there are no regulations in this respect. In Switzerland, there are few legal guidelines on borrowing except the condition that borrowing should, at least for long-term borrowing, be limited to capital expenditure. Bank credits to local authorities are usually repaid in fixed annuities, loans after the fixed periods (often converted into new loans). 3.f Risks concerning communal credit - Provision of security Because of some supervision or special structures (e.g. the fiscal adjustment system in Germany) several member institutions stated that there is implicit state liability for the reimbursement of loans contracted by local authorities; although Table 7 shows that formally there is no such responsibility in any country. Moreover, there were several comments that the local authorities do not become insolvent if the supervisory authority takes prompt action to ensure that their budgets really are balanced. At the same time a moratorium does not seem to be ruled out in seven countries. In the case of enforcement in local authority property, it was specified that the administrative functions of the local authorities should not be hindered by the enforcement. It should be noted that enforcement procedures against local authority property almost never occurred in most countries. - 32 - - 33 In Belgium, a municipality cannot go bankrupt. When financial problems arise, central government, the regions or the community (gemeenschap) take over parts of the debt. Municipalities are forced to prepare a plan for recovery, taxes are raised and expenses are cut by the municipal council or the supervisory authority, a moratorium can be introduced. If the province or commune fails to present a balanced budget, the supervisory authority can take measures to reduce expenditure or increase receipts. In France, the freedom given to the local authorities must be balanced by their responsibility for the decisions they have taken. Each authority knows that, in contracting a loan or guaranteeing a loan contracted by a third party, it will have to bear all the consequences of its decisions, with no possibility of the state bailing it out in the event of its defaulting. However, there are several mandatory rules in the realm of local finance designed to provide creditors with the guarantee that local authorities can meet their commitments: . rules of budgetary balance and veracity Every budget adopted must be a balanced one, the receipts and expenditure must have been honestly evaluated and the repayment of capital must be financed by the local authority's own resources, without recourse to loans. If the prefecture, to which the budget has to be submitted, finds that one of these conditions has not been fulfilled, it refers the matter to an independent financial authority, the regional accounts chamber, which is required to suggest ways of restoring balance to the local authority's budget. If the local authority refuses to comply, the prefect may settle the budget ex officio. . the rule regarding the entry in the budget and ex officio settlement of compulsory expenditure By means of a procedure involving the regional accounts chamber, the representative of the state, the local authority accounting officer or any other interested person may, at any time, have a so-called "compulsory" item of expenditure entered in the budget of the local authority. Debts created by a contractual undertaking - including, therefore, interest payments and repayments of loan capital - have the character of compulsory expenditure. Under another procedure, when the expenditure is properly entered in the budget but the authorising officer does not issue the order to pay, the prefect may order payment ex officio. In practice, a municipality faced with difficulties may succeed in honouring its commitments by following a multi-annual recovery plan with several component aspects: increase in taxation, savings on expenditure (especially staff expenditure), temporary renouncement of certain investments, but also, where appropriate, deferment of loan repayments, abandonment of annual instalments or rescheduling of the debt, on the basis of negotiations with the lenders. These measures are reflected in financial terms in the settlement of the budget by the prefect. In contrast with other countries, the French system is based on legal guarantees and does not call for recourse to valuable security arrangements when the local authority is in default. In Great Britain the action possible in the event of default is undefined in law. But all borrowings are legally secured against all the revenues of the local authority. In Norway it is primarily the creditors who must consider local authorities' ability to pay and the risk by lending money. The state approval of local government loan raising does not imply direct or indirect state liability. The Local Government Act does not prescribe specific measures from central government in cases where local governments do not fulfill their obligations. - 34 When a municipality, owing to other than purely temporary difficulties, is unable to pay its debts when they fall due, the Mayor shall notify the Ministry. If such notification has been made, the municipality shall - until its finances are re-established - give preference to certain claims, for instance salaries, wages and pensions. In such a situation, central government will in fact apply a more stringent supervision. A moratorium situation has not yet occurred. In Portugal, if municipalities become insolvent, a recovering plan can be set up; taxes are raised and expenses reduced upon decisions by the municipal assembly. This plan is submitted to the Government in order for the municipalities to gain access to a bonus credit line. In Belgium, the Crédit Communal which is the most important local authority banker, grants them all the loans they request, provided they are guaranteed and unless the supervisory authority objects. Loans are guaranteed by irrevocable delegation, to the Crédit Communal, of the authority's current receipts, automatically paid into its current account in accordance with the relevant communal or provincial law. In practical terms, borrowing capacity is determined by the difference between: on one hand, an estimate of the amount of annual central receipts, minus a safety margin (between 10 and 15%) on the other hand, . . automatic annual deductions annuities on loans granted already, including an estimate for those granted but not yet actually taken up. Remaining receipts may be allocated to the repayment of further loans. The calculation of "borrowing capacity" therefore varies from customer to customer. In Finland, if a municipality is "overcredited" the state can help by giving extra subsidies, based on the reasons for the "overcrediting" and the plans for recovery. - 35 In Germany, leaving aside some exceptions, local governments are not allowed to grant securities so as to secure a loan. This provision is based on the fact that a local authority is liable for its obligations with all its assets and revenues and that there are not any bankruptcy proceedings for local authority assets. The fact that the maintenance of permanent financial efficiency of the local authority is also controlled in the framework of supervisory control over local authorities is another safeguard for local government credits being secure. In Great Britain, borrowing by local authorities is secured on all the revenues of the authority. In Norway, local governments can themselves create mortgages and pledge movables to provide for security of their own debt. But local authorities may not make valid mortgage of its property as security for alien debt, except for loans applied to the further utilisation, expansion or improvement of the local government's share in the property concerned. In general, the property of a local government may not be made the object of seizure or arrest, and bankruptcy proceedings may not be instituted against local authorities. In Portugal, payments by the Financial Equalisation Fund may serve as guarantees to loans other than those contracted for council housing. In this case, the houses themselves serve as security. 3.g Legal restrictions for borrowing on the money market In most countries (see Table 8), it is possible to limit the short-term market for loans (loans up to one year). There are several reasons for this: inflation should be kept down; short-term money should only be used for short-term purposes; as interest-rates on this market generally are more flexible than on the capital market the expenditures are more insecure; the availability of money on this market is not always guaranteed. Sometimes local authorities have cash surpluses. In certain countries, they are obliged to place these funds in a central government account with a special bank. Sometimes transfers from central government to local governments are made through special banks, without freedom for local government to choose its own way to transfer the money. In several countries there are rules stating the maximum level for borrowing on the money market. Several methods for setting the limits are used. The reasons for the restrictions are: Macro-monetary considerations: The central government wishes to control monetary financing by the local government. One of the objectives of the monetary policy is that the government should withhold itself as much as possible from monetary financing. For local government some monetary financing can sometimes be acceptable in order to be able to pre-finance capital expenditure and to finance temporary cash deficits on the current account. - Sound financial practices: Capital expenditure should, in principle, be financed by fixed loans or other fixed funds or in some - 36 countries directly from current income. Too high a level of floating debt can lead to problems with refinancing and to a rapidly increasing burden of interest rate payments. Avoiding the risk of fluctuating exchange rate. - 37 - - 38 In Austria, there are no restrictions. In Belgium, Treasury Funds may only be deposited, apart from the local financial resources in the hands of the Commune Receiver, at the Post Office Bank or the "Crédit Communal de Belgique S.A." or the "Caisse Générale d'Epargne et de Retraite". The College of Burgomasters and Aldermen makes sure that municipal cash in hand is always sufficient to meet the municipality's commitments and expenditure. A municipality may, if the municipal council so decides, open credit lines on the strength of subsidies or other receipts provided for in the budget. In practice these dealings are conducted with the Crédit Communal de Belgique S.A., which gives cash advances1 against the municipality's ordinary receipts. In Denmark, Regulation No. 496 of the Ministry of the Interior of 30th June 1989 lays down a ceiling on bank overdraft. For municipalities and counties the average during the most recent 12 months of the day-to-day balances of overdrafts and building loans may not exceed the average over the same period of the day-to-day balances of cash fund, postal giro, cheque and current accounts. Bank overdrafts for joint local authority corporations, partnerships, co-operative societies and similar entities, in which local authorities have a controlling interest, may not exceed an amount of 50 DKr per capita. The rate of interest is unrestricted, but the municipality is obliged to raise a bank overdraft on favourable terms. A bank overdraft can be raised anywhere. There are no other institutions that can issue restrictions. In France, the local authorities are entitled to negotiate short-term cash loans with banks, in accordance with the provisions of ordinary law. Some authorities have a drawing right (known as a "credit line") with a bank, which enables them, when prompted by specific cash flow requirements, to obtain a credit without delay. Unlike ordinary loans, which can only be used to finance an investment operation and must be entered in the budget, cash credits do not constitute a budgetary resource and are intended solely to cope with cash flow problems. At the same time, although the local authorities enjoy a measure of freedom in obtaining cash credits, they are not permitted to invest their surplus cash. Indeed, the funds of local authorities are handled by an accountant, working as an agent of the state, through an account with the public revenue department (Trésor public). This account cannot be 1 For information: cash advances are calculated as described below: addition of all the amounts to be received and centralised at the Crédit Communal de Belgique S.A. (these amounts may relate to the current or previous financial year); minus automatic deductions (eg loan charges, hospital deficits); the difference is the maximum cash advance. . . - 39 overdrawn and surpluses cannot be remunerated. Departures from the rule concerning the obligation to deposit funds with the public revenue department may be authorised by the Minister responsible for the economy, but this is an exceptional procedure. The constraints imposed on local authorities with regard to the investment of cash funds offset the cash flow advantages granted by the state: monthly payment of government grants, payment of the proceeds of taxation in twelve monthly instalments, although taxes are collected only at the end of the financial year. In Great Britain, the Local Authorities (Borrowing) Regulations 1990 impose limits (calculated by reference to various factors, including population levels in the area administered by each authority) on the issue of bills (instruments for which all payments by the authority come to term not later than 187 days after the date of issue). Bills are normally used for short-term revenue purposes and the limit on the issue of bills is designed to reflect the individual authority's revenue-raising capacity. Some forms of borrowing require the consent of the Ministry of Finance. In Ireland all local authority borrowing on the money market is subject to the approval of the Minister for the Environment (Local Government Act, 1955). In the Netherlands legal restrictions can be found in the Local Government Finance Act and in the Local Government Loan Conditions Decree. In principle, the Local Goverment Finance Act contains only one financing regulation: if the net liquid debt of a local public body exceeds its cash limit, it is no longer permitted to take decisions to include new capital expenditure in its budget. In practice, this means that local public bodies are expected to calculate their total net liquid debts and other net short-term debts. The sum of these two types of debt must not exceed the cash limit. If this condition is fulfilled, no further limitations are imposed on funding when new capital expenditure is included in the budget, or when changes are made to the budget. Naturally, allowance must be made in a balanced account for the capital charges. The cash limit is expressed as a percentage of the fixed debt, the guarantee sums received, the reserves and the provisions. The percentages are as follows: municipalities provinces water control boards consortia of local public bodies 4.8% 7.6% 8.7% 4.8% The percentages are established by the central government. The minimum cash limit is fixed at Fl. 0.5 million. According to the Local Government Loan Conditions Decree, loans denominated in foreign currency or linked to a foreign currency are not allowed. In Portugal, municipalities may contract short-term loans to deal with unforeseen cash-flow difficulties, but the sums involved may not exceed, in each case, 10% of the municipality's cash limit under the Financial Equalisation Fund. This principle is enshrined in the Local Finance Act. Municipalities may in no circumstance directly contract loans abroad. - 40 - In Spain, local authorities may carry out any Treasury Operation for a period of not more than one year, provided the total of operations does not exceed 35% of the previous financial year's revenue. In Sweden, there are no additional restrictions to the one described in pararaph 3.a (page 16). 3.h Freedom to invest surplus funds In most countries there are restrictions on the use of surplus funds (see Table 9). Some States have no rules. In the other countries it is most common to require that surplus funds may only be used for investment purposes. In four countries, deposited funds must be kept at prescribed institutions. - 41 - - 42 - In Belgium, the new general regulations on municipal accounting provide that the municipal tax collector shall keep in hand only the funds necessary to make cash payments due in the near future. Any other available funds are paid into current accounts at either the Post Office Bank or the public credit establishments or invested with these institutions for a period of less than one year. However, if a municipality finds it advantageous to do so, the funds borrowed from establishments other than those referred to above may remain on deposit there, on condition that the establishment provides the municipality with sufficient guarantees in negotiable securities, approved by the College of Burgomasters and Aldermen. In Denmark, local authorities can place surplus funds only in domestic bonds and in bonds and investment funds with high security. In Finland, each municipality must, according to the Local Government Act, have two funds, one for balancing the tax rate and the other to maintain liquidity. These funds are used as municipal councillors decide and, optionally for investments. Surpluses for previous years are used to fill the funds. For small municipalities the investment fund is unavoidable. The use of the reserve is as described below for Germany. In Germany, when it comes to investing surplus funds, local governments are subject to certain restrictions that are designed to safeguard their liquidity. In order to ensure that expenditures are paid on time, they have to set up a general reserve from their liquid funds. The reserve has to amount to at least 2% of the expenditures of the three years preceding the budgetary year. The means accumulated in the general reserve are also designed to cover additional expenditure needs in the investment budget of the years to come. It has been laid down in detail which purposes these additional means in the general reserve are to serve. Furthermore, for purposes of the non-investment budget and for the current maintenance of the operating assets special reserves may be set up; they must be used for other purposes than those the general reserve is designed for. In so far as reserve funds are not needed for running expenses, they are to be invested in a safe and profit-making way. They have to be available for their purpose on time. It is admissible to invest and acquire fixed-interest securities (mortgage or debenture bonds) from reserve funds. The maturity of the bonds and the estimated availability of the reserve funds have to coincide, however. In contrast, the acquisition of securities from money reserved for current expenditure is in principle not permissible. As long as special reserves are not needed for their original purpose, they may be used as internal loans in the investment budget. Cash in hand not needed for business on cash terms is to be paid immediately into the account with the savings bank or any other local authority account. - 43 - In Great Britain, section 40 of the Local Government and Housing Act 1989 provides that the investment of surplus funds by local authorities would normally have to be treated as capital expenditure and therefore a part of any receipts on the disposal of such investments would have to be set aside towards the redemption of debt. This applies except where the investment is in the form of an approved investment. The Local Authorities (Capital Finance) (Approved Investments) Regulations 1990 (SI 1990 No. 426) define such investments, which are primarily government-backed securities or short-term deposits with deposit-taking bodies such as authorised banks and building societies. In Ireland there are no statutory regulations, but local authorities are expected to invest with authorized institutions. There are no restrictions in the Netherlands and Portugal. In Norway, if the annual account has shown a surplus, this shall be included as a revenue item in the budget. It must be used for investment purposes - including appropriation to capital funds, strengthening of the cash balance, extraordinary repayment of debts, and depreciation of assets - or to balance outstanding deficits from previous or the current budget year. In Spain, local Corporations are free to invest cash surplus in credit institutions and through investments providing sufficient liquidity and securities. In Sweden there are no restrictions. 3.i Transfers from central to local government Half of the countries included in this study use only one bank for transfer to local governments (see Table 10), the other half allow more freedom by using several banks. Only five countries use payable orders. The practice in the Netherlands is the same as in Germany, except that there are no rules prescribing the amount of reserve funds. - 44 - - 45 - In Belgium, without exception, fund transfers from the Federal Government, the Region and the Community are carried out through the Crédit Communal de Belgique. Laws and decrees prescribe the payment into local authority accounts with the Crédit Communal de Belgique of the following: 1. Contributions to the Municipalities Fund, of special credits assimilated to the Municipalities Fund, of the province funds and of that part of the yield of the state taxes on motor vehicles made over to the municipalities; Local taxes collected by the State; Subsidies and contributions to local expenditure and, generally, all outright grants to local administrations made by higher authorities. The Crédit Communal's central role was granted because: it is the property of the communes and provinces themselves, managed by their representatives; it is controlled by the Central Authorities by means of Government Commissioners. 2. 3. The same laws authorise the Crédit Communal to deduct automatically from local authorities' accounts their debts towards it. The monetary authorities impose restrictions on all financial intermediaries. The Crédit Communal receives and deals with applications from its public customers in chronological order. In Denmark each month the public custom and tax administration pays out grants of the Danish government to local authorities (municipalities and counties). The custom and tax administration uses the postal girobank to transfer the sums to the banks of the local authorities. In Finland, state grants are paid via Postipankki (owned by the state). The state also collects municipal taxes and remits the money via Postipankki. Municipalities can, if they wish, choose their bank connection for other tax operations. In France, the local authorities may possess no other account than the one they are required to maintain with the public revenue department. Central government transfers are therefore effected by means of administrative payment orders. In Germany bank channels are used. - 46 - In Great Britain, payments are made electronically from the bank at which the central government's accounts are held (which is also the central bank) to the bank accounts of the individual local authorities (whose accounts are held at commercial banks). In Ireland transfers from central government to local authorities are by way of a payable order and/or bank credit transfer. Payable orders of a government department are drawn on the paymaster general who meets them on presentation, in the same manner as a bank. They may be presented to the PMG through the local authorities' own bank account (private banking companies). In the Netherlands transfers from central government to local authorities take place through one bank (the Bank voor Nederlandsche Gemeenten). Also payments from local government to central government are channelled through this bank. For other payments, local authorities are free to choose their own bank. In Norway grants to local authorities are transferred from the Ministry of Local Government via the postale girobank, owned by the state, or via the commercial bankgiro, to the banks of local authorities. In Portugal, monthly payments by the government for financial equalisation are carried out through the "General Deposit Bank", a public sector banking institution. Special state subsidies to municipalities are paid by the State Treasury departments to each individual municipality by payable orders. In Spain, the general grants are transferred by the Department of the Ministry of Finance called "Coordinacion con las Haciendas Territoriales" (Coordination with the regional finance departments). The specific grants are transferred by each Department that gives them: Transport, Education, etc. Their payment is made on the account chosen by local Corporations, which usually arrange with the local Credit Bank to do so on their account in this bank. In Sweden, transfers from the central government to the local authorities go mainly through the Postal Account System. - 47 - - 48 - CHAPTER 4 SPECIAL SITUATIONS, LOANS TO OTHER SECTORS AND GUARANTEES ON LOANS To avoid restrictions, local governments sometimes switch to other ways of financing, like leasing, or they use bodies which are not in the normal control mechanism, such as joint authorities (consortia) or private firms owned by the local government. Moreover, it can be noted that certain local authorities have recourse to renting property when their financial resources do not allow them to buy or lease the property. In certain cases, loans are taken up on behalf of third parties, especially businesses. It is hard to get adequate financial data on this. To keep interest rates down and have more capital available, guarantees can be granted on loans by local government. 4.a Leasing Project financing even for municipal investment is known in almost all countries (see Table 11); the actual extent of this form of financing is not known, however. - 49 - - 50 - In Austria, financing by leasing is actually not regulated in a definite form. In some of the Länder regulations for borrowing apply for leasing as well (Tyrol). In Belgium, the Crédit Communal grants direct property leasing agreements to local authorities. Since September 1977, "Crédit Communal Lease plc", specially set up for that purpose, has carried out leasing operations for movables. The repayment period depends on the lifetime of the asset. The leasing of local authorities' assets is subject to no special restriction, apart from general supervision. The guarantees for leasing are the same as those for capital loans. In Denmark, renting and leasing contracts regarding fixed assets are considered to be borrowing. A municipality can enter into a renting or leasing contract if it remains within its borrowing ceiling. If the borrowing ceiling is fully used, the municipality can apply for permission from the Ministry of the Interior. If the application is refused, the municipality (or the county) can enter into the renting or leasing contract only if it makes a deposit of an amount equal to the value of the rented material for the whole period. The amount must be deposited on a special account in a bank. This regulation has the purpose of controlling the amount of expenditure of government. In Finland, there are no restrictions on leasing and renting. In France, the local authorities may, in accordance with the provisions of ordinary law, enter into rental and leasing agreements in respect of any asset. In Germany, opting for a financial obligation on the basis of a leasing contract is conditional on the approval of the supervisory authority, as is a loan. Entering into a leasing contract must always be preceded by a call for tenders. In Great Britain, local authorities may take a lease of property or equipment. A finance lease (including any lease of land or buildings) is subject to similar controls to those on the outright acquisition of assets. An operating lease is not subject to such controls. In Ireland, there are no restrictions on leasing. Local authorities should have regard to the finances available. There is no joint authorities borrowing and local authorities do not own private enterprises. In the Netherlands, as long as leasing or renting of property is accommodated within a balanced current account, there are no restrictions. However, if in a crisis situation it is decreed that all local authorities can only contract loans or give guarantees up to a certain amount, leasing is considered inadmissible because it gives local governments a possibility to avoid this restriction. - 51 - In Norway, renting property and raising loans are both subject to approval by state authorities. Leasing transactions which are not considered appropriate may be avoided by this means. In Portugal, there is no specific regulation on leasing. All contracts signed by municipalities, whether for loans, hire or contracts of another kind, above the limit of 7,100,000 escudos, (1988 figure) must be submitted to the approval of the Court of Audit before they can come into effect. However, contracts involving even larger sums (over 1,000 m escudos) (in 1988) may not even be signed before approval of the Court of Audit has been given. In Spain, leasing by local Corporations is allowed, even though it is not used for infrastructural work or for public equipments requiring a high investment level; it thus represents a very small part of Local Corporation financing. In the cases mentioned above, concession may be used as a means of financing. Sweden has no restrictions on leasing and renting property. 4.b Consortia of local authorities and financing of private companies There are private local authority companies (occasionally also called mixed companies or private/public sector) in virtually all countries. In most countries such companies are only being set up for public functions; out-and-out competition with the private sector is not generally allowed. In Austria, borrowing by joint authorities is generally not subject to approval of the supervisional authorities. Restrictions on borrowing apply for private enterprises owned by local government as well as in most of the Länder. In Belgium intermunicipal consortia - whether pure (i.e. comprising only local authorities) or mixed (i.e. comprising local authorities and private firms) - borrow directly from the financial institutions of their choice, without any intervention by the municipalities. In practice, most investment loans are contracted with the Crédit Communal de Belgique. The supervisory control over these loans is exercised by the Ministry of the Interior of the relevant Community. The municipal departments are bound by the rules governing municipal borrowing. Housing corporations, acting on behalf of the municipalities, borrow directly from the financial institutions. Supervision is exercised by the community minister responsible for housing policy. So-called municipal non-profit-making associations may borrow from the financial companies of their choice, so long as they can offer a sufficient guarantee. The municipalities can guarantee loans contracted by these "municipal non-profit-making associations", provided - 52 that the loans are contracted with the Crédit Communal de Belgique and the non-profit-making association in question can furnish proof of sound management and a balanced budget. In Denmark, the regulations mentioned before and regulation no. 496 of the Ministry of the Interior of 30th June 1989 also apply to joint local authority corporations, partnerships, co-operative societies and similar entities in which local authorities have a controlling interest. A municipality is only allowed to possess a share in a joint-stock company if the purpose of the company is legal. Loans raised by joint-stock companies, in which a municipality possesses a share, are considered as loans raised by the municipality corresponding to its share of the stock. In Finland, municipalities own many limiteds and play an important role in many associations. In these cases, municipalities transform loans to them or guarantee their loans. In some cases loans to private companies are guaranteed. In France, the intermunicipal public institutions (urban communities, districts, federations of municipalities) may contract loans under the same conditions as the local authorities themselves. However, the banks prefer to lend to local authorities. The local authorities may hold equity shares in local semi-public companies. The level of the shareholdings of one or more local authorities may not be lower than 50% or higher than 80% of the registered capital. Semi-public companies are limited companies subject to the rules of private law. However, the decisions of semi-public companies must be notified to the representatives of the state. If he considers that any decision is likely to cause a serious increase in the financial burden on or the risk incurred by a shareholding local authority, he refers the matter to the regional accounts chamber which submits comments. Such referral entails a second reading of the decision by the semi-public company. The local authorities have the option of guaranteeing loans contracted by private law corporations. In Germany, restrictions on borrowing by local government are also valid for consortia of local authorities. In accordance with the North Rhine-Westphalian Statute concerning the organisation and powers of local authorities, local government representatives on the management board, supervisory board or other bodies of a company that is more than 75% owned by local authorities may approve loans and liquidity credits only subject to the approval of the supervisory authority. In Great Britain, local authority companies can borrow in the same way as commercial companies (and are governed by the same legislation). But, under new legislation likely to be brought into force soon, the owning local authority's permission to borrow is reduced by the same amount as its company has borrowed. In the Netherlands, the restrictions that apply to borrowing by joint municipal enterprises are the same as those that apply to local government. In the so-called Public - 53 Private Partnerships (PPPs) local authorities are restricted only as far as they contract loans for the project or grant guarantees. PPPs between municipalities and private companies have to be approved by the county aldermen of the province in which the municipality is situated. The restrictions on borrowing by private enterprises owned by local government are the same as those which apply to local government, because these enterprises are considered to be a part of local government. The figures for loans to this sector are included in the financial statistics. In Norway, the restrictions on borrowing by joint municipal enterprises or private enterprises apply if guarantees are granted by local government. Therefore the restrictions apply in every case where local or regional government accept some kind of responsibility, either through borrowing or granting guarantees. In Portugal, it is up to intercommunal assemblies to decide whether costs relating to loans contracted by intercommunal associations should be charged to the municipality. This decision, however, is subject to prior deliberation by each municipal assembly concerned. Annuities due must not exceed fixed liability limits. These rules are part of the law regulating intercommunal associations. As yet, there are no rules on authorities' ability to hold shares in private undertakings. In Spain, there is a distinction between companies (with private law statutes) and Autonomous Corporations (with public law statutes) under control of Local Corporations. Such Autonomous Corporations can get credit, however to obtain an authorisation, they must produce consolidated financial data with those of the local corporation upon which they are dependent. Companies' endebtment is subject to no specific control. Generally speaking, mixed enterprises are governed by private law. Where loans are concerned they are not affected by provisions governing local entities. Municipal associations are considered to be local authorities. Associations combining local authorities and non-profit-making private enterprises are governed by their own statute and are not subject to any credit restrictions. In Sweden, local federations, which are the only type of joint authority governed by public law, act according to the same rules as local authorities themselves. There are no restrictions on borrowing by private entreprises owned by local government. - 54 - 4.c Granting or transfer of loans to third parties This item deals with two situations: the granting of loans by the local or regional governments to third parties (foundations, building companies, housing corporations, sometimes private firms) and the transfer of loans from other levels of government to third parties through the channels of local and regional government. Table 12 sums up the situation in certain States. - 55 - - 56 - In Belgium, in principle, local authorities may transfer the proceeds from loans contracted in exceptional and limited cases. 1. In certain cases, loans may be taken out on behalf of third parties. One example is public welfare centres (CPASs). They may take out loans either directly, with their own receipts as security (this is often the case for the centres which run hospitals), or through municipalities. In the latter case, the municipality takes out the loan and reassigns the sum involved to the centre, which pays the charges to the municipality annually. The same system may be used for the benefit of other bodies (non-profit-making "municipal" associations) or even, in certain cases (especially economic expansion), for that of the private sector. Church councils (ie. legal entities entitled by law to see to the material aspects of religious practice) may only contract loans through the municipality on the territory where they are situated. Certain non-profit-making private associations, whose statutes allow them to exercise special activities of public interest, may obtain loan capital through the municipalities, provided they provide reliable guarantees. The conditions are regulated by ministerial circular. 4. As part of their land and housing policy, certain municipalities may grant loans to young couples for building housing of a basic kind. It is forbidden to guarantee lease contracts of private firms. In Denmark, Germany or Portugal, granting loans to third parties is not allowed. In Finland, it is possible to grant loans to third parties. In France, local authorities are not permitted to engage in banking activities which are reserved for credit institutions. There are, however, certain cases in which loans or advances are officially authorised: . municipalities may grant advances to hospitals in order to alleviate cash flow difficulties resulting from the opening of new establishments or services. They may also, in certain cases, grant loans to the council housing agencies; départements may grant loans to municipalities belonging to their geographical area if the project to be implemented is of interest to the département. 2. 3. . - 57 - Furthermore, the municipalities, acting through the municipal loan funds, are entitled as a rule to grant loans against security and personal loans to local government staff. Local authorities may borrow money only on their own account. Borrowing on the account of third parties are not authorised. In Great Britain, local authorities may lend to private companies and individuals in connection with economic development or housing, but not generally for other purposes (although small loans are possible over a wider range of topics). They do, however, have wide powers to invest surplus funds. In Ireland, loans are possible for private housing or voluntary housing associations. In the Netherlands, there are no restrictions and it is common practice for municipalities to lend to housing corporations. In Norway, it is not possible for local authorities to raise loans and transfer them to a third party, unless the transfer involves complete exemption from obligations (interest, repayment, etc), on the part of local government. But on the other hand, local authorities do, in specific cases such as housing and for social security reasons, grant loans to third parties. In Spain, granting is generally not permitted, except in special described cases. Sweden has no restrictions on transferring loans from local government. 4.d Guarantees This item deals with the control of guarantees on loans granted by local authorities to third parties. In Austria, guarantees on loans granted by local governments are subject to the approval of the supervisional authorities as well. Guarantees on loans are supposed to be in the public interest of the local authority. In Belgium, the municipalities can guarantee loans contracted by third parties. That is always the case with loans obtained by public social welfare centres from the Crédit Communal de Belgique (it is required by law that these loans be discussed in advance by an advisory committee composed of municipal representatives and representatives of the public social welfare centre). The municipalities must also guarantee loans by church councils, synods and lay associations that are equated with church councils. Finally, the municipalities may guarantee repayment of loans contracted by so-called municipal non-profit-making associations with the Crédit Communal de Belgique. The loan guarantees provided by municipal authorities are regulated by ministerial circulars. - 58 - In Denmark, guarantees are regarded as loans raised by the municipality. A municipality can stand guarantee on loans as long as it has free room under the borrowing ceiling. If the borrowing ceiling is fully used, the municipality can apply for permission from the Ministry of the Interior. If the application is refused, the municipality (or the county) has to deposit for the whole period an amount corresponding to the amount of the guarantee. In Finland, loans to third parties are sometimes guaranteed. In France, local authorities may not stand security for loans contracted by third parties, with a view to limiting the risk to local authorities. Certain provisions limit the amount of loan guarantees: . . . the amount of loan guarantees may not exceed 50% of the operational expenditure of the local authority; no single debtor is entitled to receive a local authority guarantee for an amount higher than 10% of the ceiling referred to above; whether acting individually or jointly, local authorities may guarantee no more than 50% of the amount of each loan, so that part of the risk has to be borne by the lending agency. In Ireland, local authorities do not guarantee loans. In Great Britain, local authorities may give guarantees in support of loans obtained by private bodies and individuals, provided that the loans are in connection with economic development, or the purchase of a home for occupation by the purchaser. Within these categories, local authorities do not generally require consent for individual guarantees. In the Netherlands in a normal situation, there is no control on the level of guarantees which can be granted by local government. In a crisis situation there is a limit to the total level of guarantees. As regards the object of loans for which the local authorities can offer guarantees, the regulations are the same as for loans themselves. Statistics on the level of guarantees granted by local government are not available. In Norway, controls on guarantees granted by local government are much the same as restrictions on the raising of loans, including the duration of guarantees. Statistics in this field are not available. In Spain, Local Corporations have the opportunity to grant guarantees not only benefiting Autonomous Corporations and dependant companies, but also companies engaged in public works or public services, or their sub-contractors, under the condition in the latter case, that the amount of the loan guaranteed does not exceed the cost the Local Corporation would have paid to perform the task itself. Sweden has no special control on the level of loans which can be granted by local government. Statistics are not available in this field. - 59 - - 60 - CHAPTER 5 FINANCIAL DATA In this chapter, the most important financial figures on borrowing by local government are presented. a) b) c) d) Importance of capital expenditure of the local government sector (Table 13) Financing of capital expenditure of the local government sector (Table 14) Financing of capital expenditure of the local government sector by long term borrowing (Table 15) Composition of the debt of the local government sector (situation from the annual balance sheets) (Table 16) Importance of capital expenditure of the local government sector (Table 13) 5.a There are two generally accepted methods to measure the importance of the capital expenditure of local government (Table 13). The first, expressing the capital expenditure as a percentage of the gross domestic product, shows that the percentages vary from 1.1 to 4.3%. The average is around 2%. The second method compares the local capital expenditure to the gross national investments in fixed assets. One should always be careful with this type of international comparison, as the tasks of local governments show a large diversity. One important sector in which there are big differences is the housing sector, and this is why local investment expenditure in this sector is treated separately in table 13. In two countries, Great Britain, and the Netherlands, this sector is very important in the capital expenditure of local government, absorbing around half of their investments. In other countries there are other organisational arrangements for this sector. This should be taken into account when comparing the data. - 61 - - 62 - - 63 - - 64 - 5.b Financing of capital expenditure of the local government sector (Table 14) Capital expenditure can be financed in different ways: i) ii) iii) by new long-term loans which will increase the total amount of loans contracted; by using income for example from the sale of property or services, capital income etc. (in this case, debt is not increased); short-term loans. Details on items i) and ii) can be found in Table 14. - 65 - - 66 - - 67 - - 68 - 5.c Financing of capital expenditure of the local government sector by long-term borrowing (Table 15) Table 15 gives information on financing by long-term loans which increases the total amount of loans contracted (column A), the amount of State loans (column B), the annual amount of redemptions (columm D) and the total amount of interest paid on current long-term loans. - 69 - - 70 - - 71 - - 72 - 5.d Composition of the debt of the local government sector (situation from the annual balance sheets) (Table 16) From the balance sheets of local governments we can get an impression of the financial practices applied. Unfortunately, in most countries reliable data is lacking. In Denmark, Great Britain and Sweden, liquid assets placed by local authorities are greater than the received floating debt. Concerning Belgium, the figures should be interpreted with the following characteristics in mind: i) ii) Almost all the functions in the social field are carried out by the public social welfare centres. There are no financial statistics on the activities of these local public authorities. The municipalities have delegated a large part of their responsibilities to intermunicipal companies (e.g. energy distribution, teledistribution, housing and land policy, industrial zones, water distribution, socio-economic development, socio-medical establishments...). There are no financial statistics concerning the activities of the intermunicipal companies. In most municipalities the housing corporations have taken over responsibility for housing (see also intermunicipal consortia). In certain cases so-called non-profit-making associations have been set up on the fringe of legality. There are no statistics. iii) iv) - 73 - - 74 - - 75 - - 76 - APPENDIX After having studied the data and information supplied by certain States and contained in this report, the CDLR submitted a draft recommendation to the Committee of Ministers of the Council of Europe. The recommendation, the text of which follows, was adopted by the Ministers' Deputies at their 472nd meeting (March 1992). - 77 - RECOMMENDATION OF THE COMMITTEE OF MINISTERS TO MEMBER STATES ON BORROWING BY LOCAL AND REGIONAL AUTHORITIES 1. 2. The Committee of Ministers, under the terms of Article 15 of the Statute of the Council of Europe; Considering that the aim of the Council of Europe is to achieve a greater unity between its members for the purpose of safeguarding and realising the values and principles which are their common heritage and to foster their economic and social progress, and that one way of achieving this aim is to take joint action in the legal and administrative field; Considering that the local and regional authorities are one of the main foundations of any democratic regime; Recalling that Article 9 of the European Charter of Local Self-Government opened for signature in 1985 provides that for the purpose of borrowing for capital investment, local authorities shall have access to the national capital market within the limits of the law; Considering that the completion of the European Single Market envisaged for 1993 provides inter alia for free movement of capital within the EEC member states, and that local and regional authorities shall have access to the integrated European capital markets within the limits of the law; Considering that local and regional authorities should be able to draw on the experience of their counterparts in other European countries in order to adopt least costly and less risky solutions for the servicing of their debt; Considering that as part of sound financial management, the sole purpose of such loans as local and regional authorities may contract should be to finance investments, to re-schedule current debt and to finance temporary cash shortages arising from the uneven flow of income and expenditure, but not to finance budget deficits, and that current expenditure should be covered by current revenue; Considering that for reasons of sound financial practice or because of the need to co-ordinate national monetary policy or maintain price stability, some forms of control on the short-term and long-term debt position of local and regional authorities may be justified; Considering that fluctuations in exchange rates form an ever-present risk factor in foreign currency borrowing; 3. 4. 5. 6. 7. 8. 9. - 78 10. Considering that a loan pool with each local or regional authority (ie. a system whereby a specific loan is not required for every individual capital expenditure) both allows greater flexibility in the timing, the amount and the duration of loans and makes it possible to contract large long-term loans when the interest rate is relatively low, RECOMMENDS TO MEMBER STATES a. to invite local and regional authorities to i. ii. resort to borrowing only for the purpose of funding expenditure on capital investment, rescheduling of current debt or financing short-term cash shortages; ensure that the repayment of loans, including the payment of interest, can be covered from current revenues, and consequently see to it that the depreciation period is not longer than the life-span of the asset(s) financed by the loan in question; envisage the creation of a loan pool for the combined financing of the expenditure mentioned in item i) above so as to achieve optimal flexibility and efficiency; iii. b. to bear in mind the risk attending any loan contracted in foreign currency, and therefore to allow local and regional authorities free access to the capital markets only if the exchange rate risks are taken into account, which may entail certain types of control by higher authorities; to accept that restrictions on borrowing abroad may be necessary for limited periods in circumstances where exchange rate parity has to be safeguarded (eg. within the European Monetary System); to comply conscientiously with the announced deadline for state allocations to local and regional authorities in order to preserve their solvency and avert unwarranted cash shortages, and to envisage accepting the principle that interest should be paid by the state whenever the announced deadline is exceeded; in those cases in which investments need to be subsidised and the costs borne by a higher authority, to opt for the award of direct subsidies rather than promote types of borrowing at artificially limited interest rates, so that local and regional authorities know the exact real cost of investments approved by them; to consider how far it is expedient, in particular in cases prompted by the need to pursue a national monetary policy, to place limits on the amount of short-term debt (ie. borrowing for less than one year) contracted by local and regional authorities and, if such limits are imposed, to define them in a clear, objective and understandable way; c. d. e. f. - 79 g. to consider that the total amount of long-term and short-term loans that can be contracted by local and regional government should be limited only as part of a general programme to reduce the overall level of public debt or as part of a general programme to reduce public expenditure as a whole; to establish clearly the conditions of any state assistance in the event of local and regional authorities becoming insolvent; to enable local and regional authorities, if they so wish, to avail themselves of a service at national level, staffed by specialists able to provide all requisite information on the possibilities for financing capital expenditure and the conditions thereof, and on the scope for improving the management and reducing the cost of the debts incurred; to envisage periodical publication of the local and regional authorities' debt situation and the interest payments made. h. i. j.