A loss of almost R$15 billion in municipal accounts will be a challenge for mayors elected in October, experts warn
In January 2021 — when the current managers began their terms — the municipalities were in the black. There was R$871 million in primary surplus. In other words, a positive difference between income and expenses. Since then, city hall accounts have melted.
For Vladimir Maciel, professor of Economic Sciences at Universidade Presbiteriana Mackenzie, the worsening of municipal accounts is due to three reasons. The first two have to do directly with the Covid-19 pandemic and its consequences: the drop in city hall revenue from Services Tax (ISS), due to the decrease in economic activity; and the increase in spending on health, social assistance and, in some cases, subsidies for public transport companies.
“Revenue has grown less than expenses in recent years,” he says. The third reason behind the hole in public coffers is the increase in spending aimed at the results of the October elections, adds the researcher.
“The third and the beginning of the last year of management has a political cycle of public expenditure. If you are going to spend money to increase the mayor’s popularity, attract the population, you do it during this period. Expenses increase at the end of management, next to the election, because you are trying to get re-elected or become the candidate of the situation”, he points out.
Public budget specialist Cesar Lima says that the city hall deficit is directly related to the increase in spending to combat the pandemic, at the same time as there was a drop in revenue. “It was something really out of the ordinary. One case or another could be due to bad management, but the majority were fortuitous events, so to speak”, he assesses.
Consequences
Cesar says it will take time for the situation to improve. “It’s something that will take a few years before future managers can undo the damage caused by this stoppage in economic activity”, he believes.
Vladimir Maciel says that the first year of a manager’s mandate is usually dedicated to settling the accounts left by their predecessors, but that the scenario tends to be tougher for the mayors elected this year.
“This bill is bigger, which means that the mayors will have little room for maneuver to fulfill campaign promises. The first two years of their term will involve fiscal adjustment, if they want to deliver any work towards the end of their term, something of greater importance, because in the first two years there will be nothing to get it from.”
Search for relief
According to the National Confederation of Municipalities (CNM), 51% of cities were in the red at the end of the first half of 2023. In the same period of 2022, only 7% were in this situation.
The small growth in revenue compared to the generalized expansion of public spending, especially funding expenses — for the maintenance of the public machine —, such as the payment of civil servants and Social Security, helps to explain the drastic change in municipal accounts, according to the CNM.
At the time, the scenario was worse in small municipalities, of which 53% recorded a primary deficit, that is, expenses greater than revenue. In medium and large companies, this percentage was 38%.
In the midst of the crisis, the CNM, the National Front of Mayors (CNM) and other municipal entities are trying to convince the National Congress and the federal government to approve measures that alleviate the situation.
Last year, parliamentarians approved, for example, the reduction from 20% to 8% of the social security contribution on the payroll of small municipalities – a measure that has been suspended after Federal Supreme Court minister Cristiano Zanin responded to the government’s request .
Meanwhile, a Proposed Amendment to the Constitution (PEC) is being processed in the Senate that reopens the deadline for municipalities to pay Social Security debts in installments. The text allows defaulting city halls to pay in up to 240 months the social security debts that fell due by the date of promulgation of the constitutional amendment itself. The PEC also defines limits for the settlement of court orders – debts owed by public authorities to taxpayers.
Last week, the CNM began collecting signatures for an amendment to the PEC to be considered in the Senate. This is an article that determines that the social security contribution rate on the payroll is 14% for all municipalities. In other words, those who had their taxes reduced from 20% to 8% would pay 14%, the same level as those who continue to pay 20% currently.
Mayor of Guaratuba (PR), Roberto Justus says that the municipality has its own Social Security contribution scheme. The rate is 14%, just like the one that the CNM proposes for cities that are under the general regime — which currently contribute 8% or 20%. According to him, this was essential to balance the city hall’s accounts.
“If we have already carried out a pension reform here in Guaratuba to define 14% as the ideal for our own regime, it is clear that I will understand that this 14% for all municipalities would be ideal. I managed to balance my accounts. I am with zero deficit. This idea of the amendment will contribute a lot”, says Justus, who is also director of Institutional and Political Relations at the Association of Municipalities of Paraná (AMP).
Amendment proposes a social security rate of 14% for all municipalities
Extra resource from Fundeb: R$579.7 million distributed to states and municipalities
By Brasil 61
