Unformatted text preview: renewed with a division between budgeted and nonbudgeted aid. The State would intervene more and more extensively through compensation relief and would eliminate
abatements, which would engender a steady increase in budgeted aid and a corresponding decrease in non-budgeted
aid. Budget allotment indexing rules would play a growing role in light of growth in the volume of the funds concerned.
They would adjust to the macroeconomic situation, growing tighter during economic slumps and looser during economic
upswings. However, public finance macroeconomic management constraints (Maastricht) would diminish the importance
of the indexing criterion. The loss of purchasing power of budgeted aid would become more pronounced and to facilitate
acceptance of it by local authorities, a redistribution mechanism would be attached to grants in lieu of taxes. Nonbudgeted aid would be concentrated on the VAT compensation fund (FCTVA). Broadly speaking, the development of
equalization would be presented as compensation for the loss by local authorities of financial autonomy.
From the standpoint of expenditures, two sub-scenarios can be distinguished depending on the dynamics of local
The first sub-scenario adopts the hypothesis of slower growth in investment and overall control over spending. The
slowdown in capital expenditures would apply to development investment. The inventory of local public amenities would,
of course, be maintained as it is and, if need be, brought up to standard, but it would cease to grow in volume.
Consequently, recurring operating expenses would be controlled by volume and, therefore, staffing levels. However,
salaries would continue to rise under the effect of burgeoning fringe benefits, regardless of control over investments. 236 Commission on Fiscal Imbalance Operating expenses would generally continue to drift according to an exogenous trend despite the curbing of capital
The second sub-scenario adopts the hypothesis of an upswing in local development investment. The local authorities
would readopt a policy of growth with respect to their inventory of amenities. Operating expenditures would increase
through the costs engendered by new investment, in addition to the exogenous effect of the increase in the cost of
labour (retirement effect).
Changes in the debt would, naturally, depend on the scenarios adopted with regard to investment. Real interest rates
are supposed to fall. However, the local authorities would not be able to take full advantage of the return of favourable
financial leverage because of the loss of the fiscal leeway they previously enjoyed. (The potential for local mobilization of
resources would now depend solely on developed property and user fees.) The local authorities would not be able to
carry out the debt reduction policy initiated in the early 1990s, for want of sufficient savings. The upswing in investment
would engender growth in the need for financing partly covered by the increase in the VAT compensation fund and partly
by an increase in the debt....
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