Municipalities: entities allege underfunding in main areas of interest to the population

Some of the main entities representing Brazilian municipalities claim that the country’s cities face problems related to underfunding in different areas, such as infrastructure and the environment, for example. This is the case of the National Front of Mayors and Mayors (FNP).

According to the entity’s executive secretary, Gilberto Perre, municipalities have concrete demands for investment in infrastructure, as well as to offer basic services to the population, such as health and education. However, despite the volume of credit operations having increased, he states that there is still a gap between demand and the investment capacity of municipalities.

“This gap needs to be addressed. Especially because extreme weather events, which are increasingly frequent, intense and destructive, demand massive investments from cities. We were now at the World Urban Forum and, recently, at the U-20 meeting, which preceded the G-20 meeting, where the municipalities took their considerations to the heads of state”, he highlights.

At the time, municipalities requested investments of more than 800 billion dollars worldwide. In this sense, Perre points out that this is not a demand just from Brazilian mayors. “There is a demand for investment in cities around the world”, he adds.

Environment

Brazilian municipalities also suffer from underfunding in the area of the environment. Between 2002 and 2023, the Ministry of Environment and Climate Change had a budget of R$46 billion. The information appears in lifting published by the National Confederation of Municipalities (CNM).

Of this total, only R$292 million was allocated to local entities and public consortia. In other words, only 0.62% of the total budget value over 22 years. Still according to the entity, of the 10 municipalities that received the most resources, six are considered large, three are medium-sized and only one is small.

Health

In the first half of last year, information was released that millions of Brazilians were forced to move to other cities to recover their health or that of their family members. According to the National Treasury, in 2021 alone, there were around 4 million routes of this nature.

To the Brazil 61the National Council of Municipal Health Secretariats (Conasems), reported that underfunding of the Unified Health System (SUS) is the main reason for the poor distribution of services, health equipment and resources in the area.

According to the agency, underfunding has occurred since 1988 and is a major challenge for municipalities, especially small ones, which struggle despite having little money to invest and offer a quality health service to the population.

Dependence on the Union

The dependence that municipalities have on Union resources is also among the problems highlighted. To give you an idea, approximately three quarters of the country’s cities have the Municipal Participation Fund (FPM) as their main source of resources. For these entities, around 80% of the resources come from this fund.

In Bahia, for example, the Union of Municipalities of Bahia (UPB) is the entity responsible for more than 400 cities in the state and most of them — 60% — are facing financial difficulties. The president of UPB, José Henrique Tigre, explains what could happen to cities as a result of this reduction in revenue.

“In addition to the non-execution of basic services, there will automatically be layoffs that will affect the economic and social development of each municipality. We don’t want to lay off people in any way, but with the recurring losses, some municipalities have already started laying off people and others are already delaying their payroll” laments the mayor.

According to public budget specialist, Cesar Lima, a good number of Brazilian municipalities, especially the smaller ones, depend exclusively on Union resources to meet their financial obligations, which, according to him, significantly complicates the administration of these cities.

“A big complaint from Brazilian municipalities is that they have many obligations and little revenue to fulfill these obligations. So, the cost within the municipalities is very high and the investment capacity of these entities is very small, due to the range of services that they have to offer to the population, even due to legal and constitutional forces”, he explains.

FPM: city halls share R$ 1.4 billion in the second ten days of November; see values

Data released by the Brazilian Institute of Geography and Statistics (IBGE) show that almost half of the country’s municipalities have public administration as their main economic activity. In total, 43% of entities fall into this situation, which corresponds to 2,409. The data was presented at the end of last year and refers to 2021.

Where do municipalities’ resources come from?

According to information provided by the Federal Senate, Brazilian municipalities have several sources of revenue. Among them are those that come from taxes charged by the city halls themselves. They are:

Urban Property and Territorial Property Tax (IPTU)

Tax on Transfer of Intervivos Assets (ITBI)

Service Tax (ISS)

Furthermore, the Federal Constitution determines that 25% of what is collected by the states with the Tax on the Circulation of Goods and Services (ICMS) and 50% of the resources arising from the Motor Vehicle Ownership Tax (IPVA) are allocated to municipalities. The federation units must also transfer a quarter of the 10% of the Tax on Industrialized Products (IPI) they receive from the Union.

In relation to taxes under the jurisdiction of the Union, city halls also have portions of the Rural Land Property Tax (ITR), Income Tax (IR) and IPI. The Union also has to transfer around 22% of the total collected from IR and IPI to make up the FPM.

The Contribution for Intervention in the Economic Domain (Cide), currently paid on fuels, also makes up the list of federal taxes shared with states and municipalities.

Among other sources of revenue, some municipalities also rely on Parliamentary Amendments, which correspond to 72% of transfers to municipalities in 2024, in addition to Financial Compensation for Mineral Exploration (CFEM), which is divided as follows: