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Issue 2
Report on the financial situation and the management of local
government and their public agencies
Executive Summary
In the second part of its report on local government finances, the Court of Accounts
examines the financial outlook for local and regional authorities and their governance.
Following on from its last annual public report (March 2023), which reviewed forty years
of decentralisation, the Court also wished to take a closer look at the principle of the free
administration of local and regional authorities from three complementary angles: financial
autonomy, the equalisation of resources and contracting with the State and between local
The financial outlook for local and regional authorities and their
Contrasting outlooks for the financial positions of the different categories of local
authority in 2023
In 2023, France, like most other European countries, experienced a less favourable
macroeconomic situation than in 2022. According to the forecasts in the 2024 Finance Bill,
growth will be 1%, inflation will remain high and household consumption will fall slightly in
volume terms.
These trends will affect the revenue and operating expenditure of municipalities, inter-
municipal bodies, departments and regions. As a result, they also affect the savings that, along
with other resources, enable them to invest.
Revenues, particularly from VAT, will grow at a slower rate than in 2022, and the
proceeds from certain taxes (property transfer taxes or even domestic tax on the consumption
of energy products) will fall in absolute terms. At the same time, spending on goods and
services, employee remuneration, social benefits and financial expenses will be pushed up,
directly or indirectly, by inflation.
Because of the differences in the composition of their revenue and expenditure, the
financial positions of the different categories of local authority are likely to diverge in 2023. The
savings of the municipal sector (
bloc communal
) will continue to increase, while those of the
regions and, even more so, the departments will fall. The departments are suffering from an
unfavourable “scissors effect” between the growth in social expenditure and t
he fall in one of
their main sources of revenue (property transfer taxes), which has been rising steadily in recent
Thanks to the mobilisation of sources of funding other than savings (notably debt and
the use of available cash), investment spending by local authorities, including the departments
and regions, should nevertheless continue to increase.
These trends remain to be confirmed on the basis of data for 2023 as a whole. They do,
however, show a marked change compared with 2022. According to the forecasts in the 2024
Finance Bill, after having generated a financing surplus of €4.8 billion in 2022, local and
regional authorities will have a financing requirement of €2.6 billion in 2023, and €2.9 billion in
2024 (in national accounting terms).
The contribution of local authorities to the overall recovery of public finances pending
The public finance programming bill for the years 2023 to 2027 sets out ambitious targets
for the contribution of local government, and local and regional authorities in particular, to the
recovery of public finances.
By 2027, local spending as a percentage of GDP will fall by one point, the financing
requirements of 2023 and 2024 will give way to a financing surplus on an unprecedented scale
(€14 billion for local authorities and €11 billion for local government finances as a whole) and
local government debt as a percentage of GDP will fall by 1.7 points.
This trajectory is subject to significant uncertainties. As the French High Council for
Public Finance pointed out in its opinion of 25 September 2023, the economic growth
assumptions on which it is based are optimistic. In addition, the law has not defined any
instruments for distributing the targets for slowing spending between local entities, or for
penalising non-compliance.
While the mechanisms for controlling expenditure are therefore lacking, the multi-year
objective of controlling financial transfers from the State to local authorities continues to apply
to a limited proportion of these transfers (around 30% of their total amount). However, changes
in financial transfers from the State, which account for more than half of local authority
revenues, have a strong influence on changes in local authority spending.
The scope of the objective to control financial transfers from the State to local authorities
should be broadened to include all transfers, in particular the allocation of VAT revenues to
compensate for the abolition of local taxes and the overall operating grant for the regions. This
seems all the more justified given that the arrangements for offsetting the abolition of the
council tax (TH) on primary residences and the business value-added contribution (CVAE) with
VAT receipts could generate a net gain for local authorities on a permanent basis, amounting
to nearly €6 billion in 2022.
Finally, the abolition of local taxes has led to an increase in financial transfers from the
State to compensate for them (almost €36 billion in transfers of VAT receipts in this respect in
2022), and therefore the
public deficit (€124.5 billion, or 4.7% of GDP in 2022). This finding
suggests that local authorities should not reduce their local tax “basket” any further.
Financial autonomy: a debated concept, a dialogue with the State
requiring a better structure
The financial autonomy of local authorities comprises a series of guarantees that have
had constitutional status since 2003. They cover both local revenue and expenditure, and raise
the question of the nature and governance of local government finances.
Limited financial autonomy in terms of revenue, except for local authorities in the
municipal sector (bloc communal)
Since 2003, the Constitution has stipulated that the “own resources” of local and regional
authorities must represent a “decisive share” of their
This guarantee has been respected ever since. However, it does not give local
authorities effective control over their revenues. The concept of own resources has been
interpreted broadly to include revenues - shared national taxes - over which local authorities
have no decision-making power.
The fiscal autonomy of local authorities, which does not enjoy constitutional protection,
has been reduced as tax reforms have progressed.
Following the abolition of the council tax (TH) on primary residences and the business
value-added contribution (CVAE), taxes levied locally now account for only a small proportion
of the operating revenue of the departments and, to an even greater extent, the regions.
On the other hand, municipalities and inter-municipal bodies retain a significant
proportion of local taxes, mainly property taxes, over which they have varying degrees of
control (excluding CVAE, abolished in 2023, 49% of real operating revenue in 2022).
In general, the revenues (local taxes, services and property income) over which the
municipalities and inter-municipal bodies have the power to act will continue to dominate their
budgets (excluding CVAE, 63% of operating revenues in 2022).
A fall in the proportion of operating revenue accounted for by taxes levied locally and,
among them, taxes for which local authorities set the base or rate, between 2019 and
2022 (in %)
Source: Court of Accounts, according to data from DGFiP
While preserving local authority resources, the tax reforms implemented since 2018 have
weakened the direct link between local authorities and the households and businesses in their
The creation of a residential tax to be paid by all households, including tenants, and,
even more so, the introduction of a constitutional guarantee of fiscal autonomy for the local
authorities in the municipal sector (
bloc communal
) are political choices that are not for the
Court to comment on.
Autonomy over expenditure difficult to assess, but greater than autonomy over
The constitutional principle of free disposal of resources is accompanied by wide
disparities in the leeway that local authorities have over their expenditure, in compliance with
the rules governing balanced budgets (operating expenditure cannot be financed by
The existence of compulsory and prohibited expenditure is not in itself sufficient to
characterise the degree of management autonomy of local authorities. Expenditure relating to
compulsory areas of responsibility is constrained by law (such as the individual solidarity
allowances paid by the departments). However, optional expenditure (such as that relating to
extra-curricular activities) appears to be just as constrained, due to strong social demand or
regulatory requirements (supervision or catering standards).
Although variable and difficult to measure, the autonomy of local authorities in choosing
and implementing their expenditure appears to be greater than their ability to raise additional
revenue. Given the rules for balancing their budgets, the degree of this autonomy depends
above all on the level of resources they can mobilise to finance their expenditure. The more
the total amount of their expenditure exceeds that of their social expenditure, subject to the
most constraints, the more autonomous the departments appear to be in terms of expenditure.
Total operating expenditure by the departments varies greatly for the same level of
mandatory social expenditure (2022)
Source: Court of Accounts, according to data from DGFiP
Note for the reader: all the dots correspond to departments; the orange dots relate to
departments for which funding of the income support (Revenu de Solidarité
Active, RSA) has been recentralised by the State.
Changing the objectives and methods of dialogue between the State and local
The State has provided exceptional support to local authorities during the health crisis
and in the face of rising inflation. Genuine financial autonomy for local authorities must mean
that they have a greater capacity to deal with economic
contingencies, with the State’s role as
insurer becoming the exception rather than the rule.
The introduction of mechanisms for setting aside, either collectively or individually, the
property transfer taxes (DMTO) of the departments is an appropriate step in this direction;
however, the sums involved remain modest. In addition to DMTOs, collective resilience
mechanisms should be set up for each category of local authority, funded by a fraction of the
positive growth in VAT revenues allocated to them.
In September 2023, a High Council of Local Government Finances was set up. This
informal forum for dialogue between ministers, the rapporteurs of the finance committees of
the National Assembly and the Senate and the presidents of the main associations of local
elected representatives, informed by opinions from the Local Government Finance Committee
and the Court of Accounts, is intended to propose reviews of local spending, monitor the
implementation of public finance programming laws and stability programmes and help define
the participation of local authorities in projects relating to the energy and environmental
It would seem desirable to give this new body a broader remit (examining legislative
provisions concerning the financial relations between the State and local authorities, defining
mechanisms for setting aside revenue, monitoring the financial position of local authorities and
their degree of autonomy in terms of expenditure and revenue).
Financial equalisation: a drive that requires further expansion and better
The equalisation of local and regional authorities’ resources (€13.1 billion in financial
support in 2022) is an essential counterpart to their institutional autonomy. Local authorities
must have the resources they need to exercise their powers. However, the distribution of local
tax bases on businesses and households does not match the funding needs of local authorities
due to the characteristics of their population and region.
Numerous and complex systems
Numerous equalisation schemes exist, based on a wide range of indicators. They aim to
estimate the burdens borne by local authorities (population, average per capita income,
number of social housing units or recipients of income support (Revenu de Solidarité Active,
RSA)) or to characterise their level of wealth (financial potential, tax effort). They are used to
determine the eligibility of local authorities for equalisation schemes and to calculate the
amounts paid to them in this respect. Equalisation is said to be “vertical” if it involves a grant
paid by the State, or “horizontal” if it involves a deduction from the revenues of certain local
authorities and their redistribution to others.
Vertical equalisation within the framework of the global operating grant (DGF) accounted
for two-thirds of total equalisation in 2022.
Growing but still limited financial resources
In 2022, the seven equalisation grants accounted for almost 32% of the total amount of
the DGF, compared with 15% in 2007. This increase can be explained by the sharp fall in the
flat-rate portion of the DGF between 2014 and 2017 and the concurrent rise in the urban
solidarity grant (DSU) for local authorities and, even more so, the rural solidarity grant (DSR)
and the development grant for municipalities in the French overseas territories (DACOM).
Increase in equalisation grants within the overall operating grant, particularly for local
authorities (in €bn and as a %)
Source: Court of Accounts, according to data from DGCL
Horizontal equalisation was provided by seven separate schemes in 2022 (six from
2023). Apart from the two schemes for equalising revenues from property transfer taxes (within
departments in favour of small municipalities and between departments), it is at a standstill. In
particular, the national fund for the equalisation of municipal and inter-municipal resources
(FPIC) has been frozen at €1 billion since 2016. Equalisation between regions also involves
very limited amounts (€24 million estimated for 2023).
Changes in horizontal equalisation schemes
Source: Court of Accounts, according to data from DGCL
Positive effects for disadvantaged local authorities
In 2022, taking all equalisation schemes together, equalisation represented 6.7% of the
real operating revenue of local authorities, a slight increase since 2016, and 4.8% of that of
the departments, a more significant rise.
However, this limited overall share masks significant differences between local
authorities. For example, in disadvantaged local authorities, equalisation represents a
significant proportion of revenue.
Even if the effects of equalisation vary, it helps to reduce inequalities in resources and
primarily affects disadvantaged local authorities. In 2022, vertical equalisation as part of the
DGF enabled just over 10% of municipalities to exceed the threshold of 75% of the national
average financial potential per capita.
This reduction in disparities in resources between local authorities based on the burdens
they have to assume could be more marked if the resources devoted to equalisation were
higher and directed more effectively towards the local authorities that need them most.
Increase and better target financial equalisation
In the interests of greater fairness between local authorities, the biases affecting the
financial potential and income criteria used to allocate equalisation grants should first be
In addition, DGF equalisation grants, particularly the rural solidarity grant, need to be
better targeted in order to bring an end to the scattergun approach of covering as many local
authorities as possible. In fact, more than 97% of municipalities benefit from equalisation in
one way or another, even if the amounts involved are modest. This leads to a reduction in the
resources that can be devoted to the municipalities that need them most.
Given the persistence of major disparities between local authorities, it is also important
to increase the financial resources devoted to equalisation: by continuing to reduce the flat-
rate allocation inherited from former local taxes in order to finance the increase in equalisation
allocations within the DGF at a constant financial cost to the State; by relaunching horizontal
equalisation schemes; and by making financial solidarity schemes within inter-communal
bodies more widespread.
Lastly, the funding arrangements for local and regional authorities that create or
exacerbate inequalities should be re-examined. Apart from a few exceptions, the
compensation for the abolition of the council tax (TH) on primary residences and the business
value-added contribution (CVAE), as well as the DGF of the regions, through fractions of VAT,
are divided between the local authorities concerned according to their respective share of
these former revenues. This will lead to increasing distortions in relation to the actual needs of
local authorities. On the contrary, they should be modulated according to changes in the
number and socio-economic characteristics of their inhabitants.
Contracting: an essential form of public action that must become more
An abundance of contractual arrangements
The State and local and regional authorities prefer to use contracts rather than unilateral
decisions to coordinate their activities. Contracting enables the State to guide investment and
practices in areas that fall within the remit of local authorities. It legitimises their actions and
provides the necessary funding for their projects.
Contractual arrangements serve many purposes. The State has developed programming
contracts (State-region planning contracts, recovery and ecological transition contracts),
national programmes targeting certain types of areas or local authorities (
Action cœur de villes,
Petites villes de demain, Territoires d’industrie, Plan avenir montagne
, rurality contracts) and
schemes specific to particular areas or local authorities. In addition, the State and its operators
launch numerous calls for projects or expressions of interest. The regions and departments
have developed their own schemes, particularly for awarding grants.
There are so many contractual arrangements that it is impossible to list them all. A partial
count shows that they number in the thousands, and that their purpose, geographical scope
and financial impact vary widely.
Contracting, an approach that is reaching its limits
Most of the time, contractual arrangements mobilise common law appropriations or
specific State funds, without Parliament being provided with consolidated information. In 2022,
comparable amounts of grants and investment subsidies to local authorities were paid out by
the State and its operators (€4.4 billion) and between local authorities (€4.3 billion). They have
a significant leverage effect, particularly for local authorities, which are the main beneficiaries.
The State does not steer the contractual arrangements to which it is a party in the same way.
Its regional organisation does not provide it with the tools and resources to ensure optimal
monitoring. Evaluations are not systematic, even for schemes with significant financial
Local and regional authorities have made little use of the contractual mechanisms
provided for by law to better coordinate the exercise of their powers. All too often, the
contractual arrangements they have developed remain ad hoc, and only exceptionally do they
seek to ensure the overall coherence of the actions of public players. Competition is emerging
between local authority contractual arrangements and those of the State.
Reduce the number of contractual arrangements and make them more effective
Contracting can only partially remedy the inefficiencies associated with the fragmented
nature of local government and the division and overlap of powers between the State and local
authorities, and between local authorities themselves. However, the role of lead local
authorities in areas of shared responsibility with other local authorities should be strengthened.
The State has sought to refocus its contractual arrangements with local authorities
around two levels and instruments: the State-Region Planning Contracts (CPER) at regional
level and the Recovery and Ecological Transition Contracts (CRTE) with inter-municipal
bodies. Despite their mixed results, these guidelines appear appropriate and should be
To this end, the number of separate contractual arrangements should be reduced by
integrating them as far as possible with the CPERs and CRTEs, and the relationship between
these two instruments should be strengthened. New schemes should therefore be limited to
experimentation and regional differentiation. In addition, contractual instruments should be
better aligned with regional projects.
Other management improvements appear necessary. For example, the scope of the
contracts should be extended to include financial appendices detailing the multi-year
commitments of all the funding bodies. Prefects should have at their disposal management
charts listing all the contracts in force in their area and the funding provided by the State and
its operators. Parliament should be better informed of financial commitments. Contracting
should be made more accessible to local authorities (by means of a broader inventory of
existing schemes and the introduction of standard documents common to the various funding
bodies in order to lighten the administrative burden of compiling applications).
Recommendation on financial autonomy:
In order to protect local authorities from the consequences of deteriorating economic
environments, set up or strengthen additional mechanisms for individual and collective
setting aside of revenues; consequently, reserve State support for exceptional situations
ministries of the economy and finance and of the interior and overseas France
Recommendations on financial equalisation:
Without increasing the overall amount of the global operating grant, strengthen vertical
equalisation grants and focus them more on disadvantaged municipalities (
ministries of the
interior and overseas France, environmental transition and territorial cohesion, and the
economy and finance
Increase the amount of horizontal equalisation funds (
ministries of the interior and overseas
France, environmental transition and territorial cohesion, and the economy and finance
Strengthen the equalisation role of inter-municipal bodies by making it compulsory for all of
them to draw up a financial and fiscal agreement (
ministries of the interior and overseas
France, environmental transition and territorial cohesion
Recommendations on contracting:
Streamline the contractual framework between the State and local and regional authorities
around the CPERs and CRTEs, incorporating other contractual arrangements as far as
possible (
ministries of the interior and overseas France, environmental transition and
territorial cohesion
Broaden the scope of contractual arrangements, allowing sufficient time for them to be
negotiated, specifying the commitments made by each signatory in a financial appendix
and regularly assessing their implementation (
ministries of the interior and overseas
France, environmental transition and territorial cohesion