State plans to corral city officials

  • 2010-01-06
  • By Ella Karapetyan

TALLINN - Minister of Economic Affairs Juhan Parts said at a government press conference that the government may take strong measures, such as freezing the income tax transfers to the City of Tallinn if the city does not cut its borrowing plan. “The laws have requirements, including for loan requirements. If they are not met, the government must have levers to sanction or motivate,” said Parts in comments representing the government’s view on the city’s current borrowing spree.

Finance Minister Jurgen Ligi says that if the City of Tallinn goes ahead with its plan to borrow 357 million kroons (22.8 million euros) in 2010, the state may freeze income tax transfers to Tallinn. Ligi considers that the city authorities have planned on quite an unrealistic sum to borrow. He even wonders how Tallinn is going to cope with its budget for 2010.
If Ligi forbids Tallinn to take the loan, and if Mayor Edgar Savisaar disobeys state orders, the state can freeze the largest source of income for Tallinn.

According to the Rural and Urban Municipality Budget Act, the loan burden of a local government cannot exceed 60 percent of its net income. The city’s financial director, Katrin Kendra, asserts that the financial obligations of Tallinn amount to just 44.8 percent of income. However, if the City of Tallinn implements its borrowing plan as proposed, it would exceed the 60 percent limit.

Tallinn plans to borrow this new sum in 2010 and use part of it to pay back existing debts of 233 million kroons and to finance investments, however this move could threaten the fiscal deficit for euro-entry terms. The city’s remaining net debt burden would be 124 million kroons.

Parts says that he hopes that the Social Democrats who are now in power in Tallinn City Council will help to resolve the standoff. He says that “it’s a pity that the relations between the government and Estonia’s largest local government are so tense. This is not normal if the state and Estonia’s largest city cannot find agreement on long-term solutions.”
Moody’s Investors Service rates Tallinn debt at A3 with a negative outlook.