Unformatted text preview: il the early 1980s, for each additional franc of operating
revenues, three-quarters were earmarked for current expenditures (excluding interest) and the remainder to selffinancing and debt service. Between 1983 and 1989, balance was gradually restored between the two components,
which reached 50/50 in 1990 (Charts 3 and 4).
Starting in 1990, the division once again became unbalanced under the combined effect of the reduction in cash flow
and the high level of real interest rates. Today the ratio stands at 90/10 in favour of operating expenditures. Since real
interest per franc borrowed is now constantly higher than real savings per franc invested, the leverage effect becomes
negative, thus reducing loan requests (Chart 5).
It is readily apparent why the indebtedness of local authorities is now well under control. Several convergent indicators
confirm this observation: the debt/current funds ratio has been remarkably stable since the early 1970s, i.e. between
234 Commission on Fiscal Imbalance 16% and 17%. Growth in annual loan repayments has roughly kept pace with increases in reportables (the first figure is
equivalent to between 50% and 60% of the second one). The portion of savings mobilized for debt service is now lower
than it was in the early 1970s and the local debt/GDP ratio has been stable for some time, i.e. between 8% and 9%
The ability of local authorities to get out of debt (debt/gross savings) is markedly lower than the average contractual
duration of portfolio loans, i.e. five years and eight to 10 years, respectively. The finance requirements of the APULs,
which was 1% of GDP in the early 1970s and virtually disappeared in 1989 (0.16%), subsequently reappeared but
remained highly limited (10 billion francs in 1997) in relation, for example, to that of public administrations overall
(290 billion francs in 1997) (Chart 7).
To conclude, the “financial fundamentals” of the local authorities are, overall, satisfactory. The overall budget share is
becoming stable. Budgetary balance and solvency are satisfactory and indebtedness has been contained, although
financial risks certainly do persist. The fiscal slippage of a number of cities and the financial problems of certain
departments are well known, although they are highly localized and attributable more to situation factors than to
widespread problems. 5. WHAT FUTURE IS THERE FOR THE FRENCH LOCAL FINANCE “MODEL”? LOCAL FINANCIAL
AUTONOMY IS CALLED INTO QUESTION The flipside of recent changes in local finances is less pleasant. Over the past 30 years, the strong dynamic of the
budgets of territorial authorities has been achieved at the cost of heavier local taxation, equivalent to over three points of
GDP during that time, and a financial effort by the State that has hardly slackened. Various transfers to local authorities
increased from 15% of the State budget in 1980 to over 19% in 1999, although most of the transfers are tied to the
decentralization of jurisdictions.
This situation raises two basic questions. The first concerns the future of local taxation and the second, the ultimate
sustainability of the process of dividing aid paid by the State to local authorities.
The archaic nature of the local tax base, the dispari...
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