20140716-NATIXIS-France__The_territorial_reform_and_the_current_functioning_of_local_authorities_11页_429kb

Summary of FLASH ECONOMICS ECONOMIC RESEARCH: France's Territorial Reform and Local Authorities

Core Content

This document discusses the French territorial reform and the current functioning of local authorities, with a focus on financial autonomy, debt levels, and reforms aimed at efficiency and cost reduction. It also outlines the structure and responsibilities of various territorial authorities in France and their financial interactions with the State.

Main Objectives of the Territorial Reform

• Simplify administrative structure: Reduce the number of administrative layers to enhance efficiency.
• Strengthen intermunicipalities (EPCI): Increase their size and autonomy, aiming for a minimum of 20,000 inhabitants by 2017.
• Transfer competences to regions: Regions will gain new responsibilities in education, transport, tourism, and economic development.
• Abolition of departmental councils: General Councils are expected to disappear by 2020.
• Achieve savings: The reform aims to reduce government spending by EUR 50 billion between 2015 and 2017, with EUR 11 billion at the local authority level.

Key Features of the Reform

• Two draft laws were presented to the Council of Ministers on 18 June 2014.
• The metropolitan regions will be reduced from 22 to 14 by 2016.
• The French Local Government Funding Agency (AFL) will be created to improve access to the bond market and increase liquidity.

Structure of French Territorial Authorities

• Municipalities: 36,767 in total, including 36,552 in mainland France and 129 in overseas departments and regions.
• Inter-municipal cooperation (EPCI): 15,547 in total, with 2,145 having their own taxation.
• Departments: 101 in total, including 96 in mainland France and 5 in overseas departments and regions.
• Regions: 27 in total, including 22 in mainland France and 5 in overseas departments and regions.
• Overseas collectivities: 5 in total, including New Caledonia and other territories.

Competences and Responsibilities

• Regions: Economic development, secondary schools, regional transport (railways), tourism.
• Departments: Welfare benefits, rural transport, and some aspects of education.
• Municipalities and EPCI: Community services, urban planning, and local taxes.
• Special competence: All territorial authorities have a general competence to manage any matter of local interest.

Financial Autonomy and Support

• Local authorities receive financial transfers from the State, including the General Operating Grant (DGF) and VAT compensation funds.
• The financial autonomy is limited, with local taxes being a key source of revenue.
• Debt management is constrained by the "golden rule", which limits borrowing to investment purposes only.

Financial Overview (2013)

• Total local public spending: EUR 243 billion, accounting for 20.4% of total public spending.
• Local public debt: EUR 91.8 billion, contributing 9.4% to total public debt.
• Debt repayment capacity: 4.4 years in 2013, indicating a relatively low risk.
• Debt growth: Increased by 53% between 2003 and 2012, with municipalities being the largest contributors.

Debt Composition and Management

• 93% of local public debt consists of long-term bank loans.
• Structured loans are not offered by the AFL.
• The French Local Government Funding Agency (AFL) aims to:
  • Pool borrowing volumes and risks.
  • Increase market share to 25% within 10 years.
  • Obtain EUR 500 million in equity capital and EUR 4 billion in annual new loans.
  • Provide a dual guarantee system for creditors.

Risk and Liquidity

• The risk of a credit event on French local debt is very limited.
• The AFL is expected to enhance liquidity and market depth by enabling access to the bond market.
• Financial oversight is ensured by the Prefect, who monitors compliance with budgetary rules and accounting standards.

Financial Autonomy and Equalisation

• Financial autonomy is partially controlled by the State, with the DGF being the main source of funding.
• Horizontal equalisation funds were introduced to promote financial solidarity among local authorities.
• The government plans to reform the DGF in 2015 to enhance financial solidarity between rich and underprivileged areas.

Conclusion

The reform is a significant step towards decentralisation and efficiency in the French local public sector. It aims to reduce costs, enhance financial autonomy, and improve debt management. The AFL is expected to play a crucial role in funding and liquidity management for local authorities, while the State maintains budgetary and legal oversight.