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A change in three of the laws that give the guidelines for the sustainable management of departmental finances is what territorial entities are asking for, based on a report presented this Monday by the National Federation of Departments (FND), according to which they would have lost 45 percent of current income due to the impact of the pandemic and national containment measures.
With the requests of the territorial entities it would be necessary to modify, from decrees, laws 617, 358 and 819, with which local leaders would be free to expand debt, make more operating expenses and modify the budget with emergency decrees, outside the participation of the councils and assemblies in the territories.
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This, alleging the needs posed by the current situation, since, according to the study, in the fourth month of the year they received current income of 352,894 million pesos, while in the same month of 2019 they had almost double: 642,611 million .
Of course, this is a consolidated, since the impact was not the same for everyone, and there were even four departments that received more income: Vaupés, Vichada, San Andrés and Antioquia. In contrast, 11 territorial entities had a reduction of more than 50 percent in their income, among them Casanare, who heads the list (-77%), followed by Valle (-72%), Sucre (-68%) and Bolívar ( -60%).
The impact on territorial income has been exacerbated, due to the decrease in the income of the population, among others
“The impact on territorial income has been exacerbated, due to the decrease in the population’s income, unemployment, and less productive activity: closure of establishments, hotels, bars and restaurants; trade paralysis; decrease in territorial contracting ”, among others, said the director of the FND, Carlos Camargo.
The department union presents the numbers related to tax income, since a good part of its resources come from the collection and, even more, from what the leaders have alleged in other scenarios such as a dependency on the ‘vice taxes’, which, moreover – on this occasion – were affected by the closing of bars and by the need for households to spend more on food than on alcoholic beverages.
Liquor consumption had a significant drop
This is how, according to the FND report, in the national consolidated, liquor consumption income fell by 35 percent, beer consumption revenue fell by 32 percent and cigarette consumption fell by 6 percent, and the FND estimates that in May, the situation will be worse. This, because the bars are still closed and the foreign liquor, a source of income for the departments, will have “a decrease in the collection of the consumption tax of 34% and 75% for the tax. consumption of foreign beers, compared to the same month of 2019 “, according to estimates.
It should be noted that there was also lower income from the motor vehicle tax side, which had a steep drop (-90%), since it is in the first semester that this tax is provided in the regions.
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In recent years, the fiscal consolidation of the departments has advanced, but one of the points that have been in the public debate is the regions’ high dependence on national transfers ($ 126.2 billion was expected to be turned over to them). Nation through the 2020 budget).
In the report, the departments registered a debt of 4.5 trillion as of December 2019 (without updating the figure by 9 departments), and the Directorate of Fiscal Support of the Ministry of Finance indicates that they all have debt capacity.
In effect, “Flexibility of the limits of indebtedness and fiscal responsibility that the departments must observe” is one of the requests of the FND, in addition to requesting “the creation of a credit line with resources from the Fome or the National Budget to compensate the fall in territorial income, guarantee the renegotiation with financial entities of public credit operations ”.
The regions also advocate “increasing co-financing with resources from the National Budget to meet operating and investment expenses; create direct lines of credit with Findeter, Finagro or Bancóldex with soft conditions, to guarantee the fiscal sustainability of the departments ”.
In the deck of possibilities, they propose “being able to use the resources of games of luck and chance, as well as accumulated prizes (Baloto), and flexibility of requirements to access resources of the Fonpet” (saving of territorial pensions). Baloto, was recently issued a concept of Coljuegos, in which it states that said resources could not be used for purposes other than those intended, since they would impact the sales of the game and would act outside the provisions of the operator’s contract.
‘Departments could go into default’
What effect on the functioning of the departments can the reduction figure have in the income they have registered?
I don’t know
The drop in income may initially affect the ability of the departments to comply with the indicators that set limits on operating expenses, which are dealt with by Law 617 of 2000. If the observed decrease deepens and continues over time, they could even reach a cessation of payments, generation of current liabilities and need the application of fiscal consolidation measures.
The proposal of the Fome line of credit that they make would be like going around the same money (part of those resources come from a loan that the Government took from the savings of royalties in pensions and in the FAE) …
Like the Nation, territorial entities need mechanisms to compensate for the drop in income and maintain financial capacity to meet commitments in operation, investment, as well as to meet new emergency expenses.
The request to the National Government is aimed at evaluating an extraordinary funding mechanism for the territories.
What is the limit operating cost and what would be the use of expanding it in a medium-term context that is austerity?
The limit to operating expenses is set by Law 617 of 2000 as a maximum percentage of free destination current income that can be used in operation by the departments.
The limit is defined by categories and is more restrictive for the departments that generate the most tax revenue in order to produce greater operational savings that are destined for investment in the territories.
The relaxation of this rule gives a better margin of maneuver to the governments and mayors and avoids having to execute a personnel reduction policy as a measure to reduce expenses and comply with fiscal indicators.
How much debt capacity do they have, in addition to the obligations they already brought?
Debt capacity will be affected by the drop in current income. We are estimating a realistic scenario based on public information from the departments. We have had permanent meetings with the Government in which he has shown great receptivity to the difficult situation in the regions, as well as to the proposals that we make to overcome the situation.
What does Apoyo Fiscal de Minhacienda say?
The director of fiscal support of the Ministry of Finance, Ana Lucía Villa, after expressing that all the departments have indebtedness capacity, since “only Barranquilla and Medellín are without such capacity,” invited territorial entities to report the income figures, such as This agency requested it through the ‘Model to estimate the fiscal implications derived from the covid-19’. This will allow gathering information that allows “making decisions based on data and not on perceptions,” he said.
According to the official, to date none have made the reports, which will be key to knowing the real state of finances.
For the time being, according to Villa, in the accounts that this address carries, at the end of 2019, the territorial entities were left with 7 trillion pesos in cash that are a usable mattress in the emergency.
As for the request to modify the three laws to make the rules that have made it possible to clean up territorial finances more flexible, Villa pointed out that it is necessary to sit down to talk, as is done at the national level with the fiscal rule.
He added that it is necessary for the leaders to accept that there is a need to modify the development plans, since it would end up making “bridges where there are no rivers”, that is, that the emergency poses different investment needs than those that had already been foreseen.
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