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Issue 2
Report on the financial situation
and management of local government
authorities and their establishments
November 2021
In the first issue of its report on local public finances, published in June 2021, the Court
analysed the financial situation of local government authorities as of 31 December 2020, after
a year marked by the pandemic and its social and economic consequences.
This second issue covers the situation and outlook for local government finances in 2021.
It also presents an analysis of investment by the municipal block, the management theme
selected for the 2021 edition of this annual report. This report draws in particular on the
analysis of all the management accounts of the municipalities and intermunicipal authorities
for cooperation between local authorities (EPCIs), as well as on the final observation reports
of the regional chambers of accounts concerning 49 municipalities and 56 EPCIs, over periods
covering all or part of the electoral mandate cycle that began in 2014.
A favourable growth outlook, despite continued uncertainties regarding
the pandemic and economy
A context marked by the continuation of the pandemic and the local taxation reform
In 2020, the pandemic led to a deterioration in local government authorities’ financial
situation, justifying central government’s implementation of targeted measures mainly intended
to offset their loss of revenue.
The continuation of the pandemic into 2021 led general government to extend measures
to support the economy, while fostering the upturn through the implementation of the recovery
plan. Local government should, however, benefit from a favourable financial situation thanks
to the fact that revenues were less affected than in 2020, as well as exceptional central
government support measures for the most vulnerable communities and to foster local
2021 also saw the introduction of the local taxation reform following the abolition of the
housing tax. Following the pandemic, this was supplemented by a stimulus component
concerning production taxes. As a result, all levels of local government saw substantial
changes to their tax revenues, without the objectives that guided these reforms always being
The replacement of the housing tax (for EPCIs) and the property tax on constructed
properties (for the departments), the base of which is territorialised, with a fraction of value
added tax (VAT), which has no local base, exacerbates the loss of a tax connection with local
areas. The same observation applies to the regions
leaders in terms of economic
, which no longer have resources directly linked to local economic activity.
Despite the adopted principle of financial neutrality and guarantee clauses concerning
VAT proceeds, local taxation reform is reducing the ability to adjust the tax rates of groups of
municipalities and departments. The latter no longer have rate power1 and are becoming more
exposed to a deterioration in the economic situation, which would cause a contraction in nearly
all of their tax revenues and an increase in their social expenditure. In the case of
municipalities, the “correction coefficient” system introduced to ensure the n
eutrality of the
reform entails tax transfers between territories.
The rate of transfer duties on payments (DMTO) is flexible but nearly all departments are at the ceiling rate.
The increased exposure of local government authorities’ tax basket to the economic
climate prompts continued discussions that began during the pandemic to strengthen the
resilience of local finances and solidarity between local government authorities.
A favourable financial outlook
Despite the ongoing pandemic, local government’s financial situation should improve in
2021, with stable financial transfers from central government on a like-for-like basis, new
exceptional support measures, the extension of existing measures and favourable prospects
in terms of local and economic taxation.
The analysis of local government’s provisional accounts tends to confirm this trend and
suggests a rebound in local investment in 2021. INSEE is expecting a recovery in economic
activity (+6.6% at the end of the third quarter of 2021), which local authorities would benefit
from, notably through a basket of revenue now more sensitive to the economic situation,
despite uncertainties concerning developments in the pandemic.
Local government’s involvement in the recovery plan
The national recovery strategy is part of the “France Relance” recovery plan. Unveiled
by the Prime Minister on 3 September 2020, it has €100bn
in funding, including €40bn under
the European Union’s Recovery and Resilience Facility and €20bn corresponding to the
reduction of local economic taxes.
France Relance includes the allocation of €10.5bn to local government: €2.5bn in
investment support t
hrough various allocations, €3.7bn in sectoral measures and €4.2bn
dedicated to compensating for loss of revenue caused by the pandemic. The valuation of the
recovery plan therefore includes a wide variety of expenditure, the purpose of which may seem
far removed from a strict recovery approach. Furthermore, the effectiveness of the amounts
provided will depend on the completion of the local projects supported.
This central government support for recovery comes alongside a new process for
contracting with local government, through two main tools: the recovery and ecological
transition contracts (CRTE), of an inter-municipal scope, and the departmental and regional
recovery agreements.
The 843 CRTEs, whose signature deadline was postponed until the end of 2021, concern
the municipal mandate (2020-2026). Presented as an opportunity to overhaul central
government’s contractual policy, they are intended to gradually replace the existing contracting
common law or thematic
led by central government and its operators. The
effectiveness of this streamlining process will mainly depend on the conditions of its
implementation and in particular on the CRTEs’ interconnection with the other existing
In this context, central government has bolstered
the departmental prefects’ resources
and entrusted the national agency for territorial cohesion, created on 1 January 2020, with
coordinating the CRTEs and the mission to provide project engineering support to small local
government authorities. It will be necessary to first measure the effectiveness of the new
provisions selected and their contribution to simplifying the contractual panorama.
In addition, through the stability programme, France has embarked on a path of securing
the recovery of government finances based on a reduction in expenditure by all general
government. As recently recommended by the Court2, continuing along this path will need to
result in a new government finance programming bill (LPFP) approved in autumn 2022 and
covering the duration of the legislature. Constrained by the electoral calendar in this way, the
Court of Accounts,
A government finance strategy for exiting the crisis
, June 2021, available on
financial contracting that would take over from the Cahors contracts3 of the 2018-2022 LPFP
will need to clarify the relationship between local government’s expected contributi
on to the
recovery and the national objectives for the sustainability of public spending.
The outlook for the reliability of local accounts
Alongside these major changes to local finances, the process of enhancing accounting
quality is continuing.
The constitutional requirement for the reliability of general government accounts is
essential to the transparency and quality of their management. Two ongoing initiatives, which
will bring the local public sector closer to the rules applicable to the entire public sector, should
contribute to this.
Firstly, the Court of Accounts, together with the regional chambers of accounts, is trialling
the certification of the accounts of 25 volunteer entities. After an initial interim assessment
conducted in June 2019, a trial certification of the accounts has been initiated, in accordance
with the specifications drawn up by the Court, proposing four models: certification, specific
certificates, limited examination and a summary of the quality of accounts.
Regarding this new phase, two points deserve attention: the timetable for the adoption
of the accounts, which risks not enabling certain adjustments to be integrated and thereby
preventing the formulation of reservations, and the risk of divergence between different sets of
accounts (administrative accounts, management accounts and financial statements).
Secondly, the alignment with the entire public sector’s management rules has led to a
trial of the single financial account (CFU), which by 2024 is intended to replace the
management account produced by the accountant and the administrative account produced
by the authorising officer.
This unification will constitute progress in terms of the presentation of the accounts,
although a consolidated version (one CFU per entity rather than per budget) seems desirable.
The project must bring simplifications (of the appendices in particular), which are still moderate.
Lastly, the implementation of this project should not result in the most relevant current
information being selected from a given document, and instead should more clearly form part
of a process to improve the reliability of local accounts by ensuring the quality of the information
provided, in line with the work under way to prepare the collection of standards.
Investment by the municipal block
The financial jurisdictions oversaw the implementation of the municipal block authorities’
investment projects during the last mandate, as well as the organisation of their project
ownership. They endeavoured to analyse the performance challenges facing the municipalities
and EPCIs in terms of asset management.
A dominant proportion of public investment but insufficient traceability
The municipal block is the leading public investor (37% of net acquisitions of non-
financial assets), ahead of central government and its operators (33%). The annual investment
expenditure of municipalities and their groups increased from €36.8bn in 2014 to €43.2bn in
The 2018-2022 government finance programming bill set up a three-year objective for developments in local
government expenditure, broken down in a constrained manner, in the form of so-
called “Cahors” contracts, for the
321 largest local government authorities and groups from a budgetary perspective.
2019. That same year, they accounted for 67% of all investments by local government
authorities and their own tax groupings.
The time taken to prepare and carry out investment projects during each elective term
sets the pace for changes in the communal block’s investment expenditure. While this cyclical
development has an impulse and ripple effect for public investment as a whole, variations in
the last cycle were more pronounced than previously. In particular, investment expenditure fell
in 2014 and 2015 against a backdrop of concern over financial resources and a decline in the
overall operating grant.
Change in municipal block capital expenditure
Source: Court of Accounts, according to DGFiP data. Scope: municipalities: including City
of Paris total since 2018
EPCI: outside the Lyon metropolitan area
2020: provisional
The breakdown of this expenditure shows a steady but measured increase in the share
of EPCIs. It also reveals persistent territorial differences. The reconfiguration of the
intermunicipal map following the NOTRé law does not appear to have reduced these
disparities, but has altered the balance between population strata. Intermediate
agglomerations with a population of between 20,000 and 50,000 inhabitants are proportionally
investing the least. Strong investment expenditure is driven by agglomerations with over
300,000 inhabitants, as well as by municipalities with fewer than 20,000 inhabitants.
Annual change in real median investment expenditure per capita by demographic
Source: Court of Accounts, according to DGFiP data
The municipal block’s role
as the leading public investor contrasts with the lack of
financial information available on the content of its investment choices. Over half of annual
capital expenditure is recorded as fixed assets under construction, a category with a very
limited breakdown by type of expenditure. The appended budgets and a quarter of investment
expenditure fall outside the functional presentation. Local government authorities’ balance
sheets give a distorted picture of the state of fixed assets, notably due to the specific rules on
equipment subsidies and depreciation, as well as the difficulties of reconciling physical
inventories and accounting inventories. However, this financial information is essential for
steering and verifying the effective implementation of territorial strategies.
unctional presentation of the municipal block’s actual investment expenditure during
the 2014-2019 cycle
Source: Court of Accounts, according to DGFiP data. Main budgets. Just 75% of the actual investment
expenditure of the main budgets of municipalities and EPCIs are presented according to the functional
nomenclature. In particular, expenditure by municipalities with fewer than 3,500 inhabitants is excluded.
The conduct and methods of financing of investment strategies
The project ownership of the municipal block authorities, defined by the law of 12 July
1985, has been structured and consolidated around legal and regulatory obligations, but above
all around industry processes and standards. The financial jurisdictions regularly encourage
local government authorities to not fall short of these good management standards, which
concern the quality of strategic approaches, preliminary studies and cost forecasts, the ability
to regulate projects over a mandate thanks to multi-year investment plans, and knowledge and
technical monitoring of assets and their costs. Insufficient structuring of technical engineering
and budgetary management capacities represents an organisational weakness and a risk,
particularly a financial risk. The latter cannot be resolved by resorting to outsourcing project
management or project ownership, which is widely used but needs to be more effectively
controlled. The socio-economic evaluation of the investments made, particularly in large
facilities, is still too marginal.
To finance their investment policies, and with the mandate cycle being marked by a
climate of financial uncertainty linked to the decline in the overall operating grant, the municipal
block authorities have consolidated their level of net savings. These efforts have been
accompanied by facilitated access to borrowing and an increase in investment grants from
central government, particularly around targeted programmes such as “heart of the city action”.
Conversely, investment subsidies from the departments and regions have declined.
Sources of funding for fixed assets of the municipal block for the 2014-2019 mandate
(main budgets and appendices)
Source: Court of Accounts, according to DGFiP data. “Other investment
income” (€
6.2bn in 2019) includes sale proceeds, development tax and the
second part
registered in the investment section of the domestic tax on the
use of energy products (TICPE)
The last mandate cycle was influenced by changes to the intermunicipal landscape
caused by the NOTRé law, which disrupted the construction of the first multi-year programmes.
However, many nascent EPCIs have been able to draw on an investment policy and on
unifying approaches, such as the construction of their territorial climate, air and energy plan,
to legitimise their action regarding member municipalities and inhabitants. The expectation
was that this reconfiguration of the intermunicipal map would foster the streamlining of
investment choices, as well as the development of territorial equalisations, in order to more
effectively distribute the burden of facilities whose influence often extends beyond municipal
borders. Although the volume of assistance funds actually increased during the period, the
methods of defining the community interest too often appear insufficient with regard to these
Asset management performance can be improved
The conservation and upkeep of existing assets requires a sufficient effort on upkeep
and renewal. The financial jurisdictions have seen progress in terms of maintenance and
monitoring the risks of deterioration, for example regarding the conservation of structures and
water and sanitation networks. In the latter area, however, renewal needs are expected to
accelerate over the next decade. Occasional situations of under-investment persist and are
regularly the subject of alerts from the financial jurisdictions.
Conversely, local government authorities’ investment choices are still too often
disproportionate with regard to their financial resources
and inhabitants’ needs. This
disproportion is verified through the oversizing of equipment during the development of the
programme. This is also evidenced by the proliferation of aqua centre projects, which have
increasingly complex characteristics. Similarly, the uninterrupted increase in the size and
surface area of the municipal road network and car parks does not appear to be under control.
Lastly, the quality of real estate portfolio management is inconsistent. The
implementation of real estate policies, particularly in the largest communities, deserves to be
developed. However, local government authorities are still dependent on school demographic
forecasts, which govern the choices for adapting the school network.
Initiatives to control energy consumption have become widespread. They now constitute
an integral component of real estate portfolio management and are set to grow. Best practices
are found among local government authorities that have developed monitoring and indicators