Budget: half of the cities have accounts in the red – 08/20/2023 – Market

The increase in the number of municipalities with red accounts in the first half of 2023 led hundreds of mayors to Brasília last week, in a mobilization in search of new financial aid from the Union.

According to a survey by the CNM (National Confederation of Municipalities), 2,362 cities registered a primary deficit in the first six months of 2023 – that is, they spent more than they collected. The number is almost seven times that registered in the same period last year (342).

In addition, the number of municipalities in red represents 51% of the 4,616 municipalities that provided information in the integrated system maintained by the National Treasury. In the first half of last year, the proportion was 7%.

The deterioration of city hall finances, about a year before municipal elections, mobilized representatives from more than 2,000 cities, according to CNM.

They went to the deputies’ offices in their regions in search of reinforcements to implement the relief agenda for the municipalities. They also circulated in the halls of the National Congress, approaching leaders.

According to interlocutors from the Ministry of Finance, requests for help have already reached Minister Fernando Haddad. At least two deputies were at the headquarters of the folder to present demands related to the municipalities.

Deputy Paulo Guedes (PT-MG) asked the minister to think of a way out to help the cities. Deputy Fernando Monteiro (PP-PE) took some mayors with him and told the economic team that he intends to present a PEC (proposed amendment to the Constitution) with measures focused on municipalities.

At the Treasury, the diagnosis is that the drop in transfers, including the FPM (Municipalities Participation Fund), supplied with part of federal taxes (such as Income Tax and IPI), triggered the alert among mayors and, by extension, in the National Congress.

Faced with his own challenge to rebalance the federal accounts, Haddad has avoided making promises so far, but his team already admits that the matter tends to gain momentum in the coming weeks.

A PEC already in progress wants to increase the volume of resources destined to the FPM. The fund currently receives 25.5% of the federal government’s income from income tax and IPI. The original percentage was 22.5%, but three extra installments of 1% each were approved in constitutional amendments enacted in 2007, 2014 and 2021.

The proposal is to provide for an extra transfer of 1.5%, to be paid in March of each year. The CNM estimates that the measure could inject an additional R$ 11.1 billion into the municipalities’ coffers. At the same time, it would mean a loss of revenue for the Union.

City halls also claim compensation of BRL 6.8 billion for the losses of municipalities with the reduction of ICMS on fuel, approved last year, still under the Jair Bolsonaro (PL) government.

The agenda also includes initiatives that coincide with or clash with the interests of the federal government in Congress.

In common, municipalities and the Union want the resumption of the casting vote of CARF (Administrative Council of Tax Appeals), an instrument that returns to the Treasury the tie-breaking power in administrative judgments of tax conflicts.

By helping to maintain tax collections shared with subnational entities and allowing the negotiation of outstanding debts, the measure could inject BRL 33 billion into the FPM, estimates the Confederation. The bill is under analysis in the Senate.

City halls and the federal government, however, differ in relation to payroll exemption. Smaller municipalities do not usually have their own pension system, and their employees are insured by the INSS (National Social Security Institute). City halls need to collect 20% on the payroll, as well as other employers in Brazil.

A bill pending in the Chamber of Deputies intends to extend payroll exemptions to 17 sectors and extend the benefit to municipalities with up to 142,000 inhabitants. For them, the rate would drop to 8%. This change alone would cost around R$ 10 billion to the Union’s coffers. Haddad has already said he considers the project unconstitutional and is against its approval.

The president of the CNM, Paulo Ziulkoski, says that the deterioration of municipal finances “is not just a conjunctural thing” and is also linked to the expansion of the competences of the municipalities, which, according to him, bear an increasing share of the costs of services the population.

“It’s not him [prefeito] who is to blame, it is Congress that approves measures, the government that edits such a program without providing the due financial compensation”, he says.

From a conjunctural point of view, municipal revenues from taxes even rose 12.6% in the first six months, in nominal terms, but they represent a small slice of funding for smaller cities, more dependent on transfers.

Current transfers had a nominal increase of 0.2%. Discounting inflation, this means that municipalities had a real drop in transfers, especially smaller ones.

In addition to the loss of breath in the FPM, there was a damming in the release of parliamentary amendments, which irrigate the municipalities.

In the first half of 2022, city halls received BRL 13.2 billion in amendments indicated by congressmen, a value that fell to BRL 5.6 billion this year. In health, the drop was even more intense, from R$ 10.7 billion to R$ 2.9 billion.

Meanwhile, expenses rose 24%, also in nominal terms, in the wake of readjustments and increased investments.

City halls argue that 25% of the payroll is linked to teaching, whose salary floor is calculated by the Union and had readjustments of 33.24% in 2022 and 14.95% in 2023. This year alone, the impact was calculated in R $19.4 billion by CNM. Not all municipalities strictly followed the reference percentage, but the value gives a dimension of the weight of the measure for local accounts.

Regarding investments, the CNM states that the municipalities are concluding with their own resources some of the works paralyzed by the Union due to lack of money in the federal budget.

Ziulkoski claims that the mayors’ pressure for federal aid “has nothing to do with the election” of 2024, in the sense of being re-elected or succeeding.

“If the mayor doesn’t leave money in the box to pay for his remains to be paid [despesas contratadas no mandato que serão pagas só em anos seguintes], he goes to jail. The mayor goes to jail, while the President of the Republic travels to the United States”, he says, without naming names. The statement makes an implicit reference to Bolsonaro, who traveled to Miami on the eve of the end of his term.

The LRF (Fiscal Responsibility Law) prohibits holders of Powers from contracting expenses at the end of their mandate without leaving money in cash to pay them. The practice can be punished, hence the preoccupation of the mayors one year before the elections.