Finance of municipalities

11. Oct 2022
Municipal debt is rising

The latest statistics on municipal finances have been updated up to and including 2021. The figures include operational and investment costs, tax revenues, assets and liabilities. Per capita figures enable comparisons between municipalities.

Costs exceed revenues

In the 2018-2021 period, operational and investment costs per capita exceeded revenues from tax and duties per capita in the municipal sector. The cost-revenue gap per capita was more than DKK 1,000 in 2021, narrowing from the previous three years. As the graph below shows, the 2007-2009 period also saw costs exceeding revenues.

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Although operational and investment costs per capita went down in 2021, municipal operational costs continue to grow, going up by 6-7% annually for the past few years. Reduced investment costs are the reason for the lower operational and investment costs per capita. In 2021, investment costs shrank by one-third. The past few years have seen heavy investments by municipalities, including numerous schools and the considerable costs involved in the expansion of the Port of Tórshavn. Total investment costs for all 29 municipalities exceeded DKK 900 million in 2019 and 2020.

Total municipal tax revenues are almost unchanged despite significant population growth, resulting in less tax revenue per capita. In 2020 and 2021, the municipalities took in DKK 2.7 billion in taxes and duties.

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The graph below ranks municipalities by operational and investment costs per capita in 2021. The differences from top to bottom are significant, ranging from DKK 75,000 at the top to about half that at the bottom.

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Most municipalities have per capita tax revenues in the DKK 45,000-55,000 range.

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Total net debt burden above 30%

Many municipalities have seen overall budget deficits in the past four years, resulting in an increasing total net debt burden (net debt divided by taxes and duties). Municipalities are more indebted now than they have been in the past few years. In 2017, the total net debt burden for all municipalities was just below 6%. By 2021, it has increased to more than 30%.

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Net debt in the municipal sector has risen steadily since 2017. The per capita net debt in 2021 was almost DKK 16,000. Such high net debts have not been seen since 1999.

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Eight municipalities have positive net cash instead of net debt. These are all small municipalities. Tórshavn, the largest municipality, has modest net debt. Two large municipalities, Fuglafjørður and Klaksvík, have high per capita net debt, at DKK 56,000 and DKK 53,000 respectively.