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One in six municipalities is vulnerable to interest rate increases on loans

​The municipalities' debt level has increased from 60 to 76 per cent of revenue over the past ten years. There are wide variations between municipalities in debt level and latitude to service debt. – The increased debt level in many municipalities still gives cause for concern, says Auditor General Per-Kristian Foss.

Published 2/17/2015 12:30 PM

Document 3:5 (2014–2015) The Office of the Auditor General's investigation of municipal borrowings and debt load was submitted to the Storting on 17 February 2015.

High levels of debt, weak operating results and low distributable reserves mean that one in six municipalities has limited financial latitude in the event of reduced revenues or higher interest expenses. These municipalities together have less than one million inhabitants.

– In the longer term there is a risk that these municipalities will not be able to manage their debt without consequences for essential social welfare services for current and future residents, says Foss.

The survey also shows that the municipal councils in the municipalities with the highest debt level receive little information about their debt load in key governing documents.

– The Ministry of Local Government and Modernisation should implement measures so that the municipalities' finance plan, annual budget and annual report provide sufficient information to the municipal councils, recommends the Auditor General. – The Ministry should also consider whether the Office of the County Governor’s instruments can contribute to a greater extent to good control and follow-up of the municipalities' debt load, says Foss.

The Local Government Act sets some rules that will ensure sustainable economic development. The Office of the Auditor General believes that the rules which restrict the municipalities’ latitude to act are important, but not sufficient. National authorities will not be unaffected by municipal debt loads that impact the quality of municipal services.

– The Ministry of Local Government and Modernisation should consider whether the Local Government Act ensures a sustainable debt burden, says Foss.

The Minister of Local Government and Modernisation agrees that it is important to follow the accumulation of debt in the municipalities and county authorities, and states that the Ministry will consider the OAG's recommendations in light of the expected recommendation from the local government act committee.

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