How do you finance the “bow tie”?
After the demolition of the Theater, the Municipality of Tirana has announced that it will build a new theater, worth 30 million euros, which will be provided through a loan with sovereign guarantees, as it does not have sufficient funds.
But how much is the value of this theater worth, in relation to the income that capital provides from the taxes and commissions it collects from businesses and families.
According to the 2020 draft budget, in 2019, the estimated revenues of the Municipality of Tirana from its resources (taxes and fees) were about 13.4 billion ALL, or about 105 million euros (the de facto budget of 2019 does not has not yet been published). Together with conditional and unconditional transfers and transferred revenues, the Municipality’s budget amounts to LEK i 18 billion, equal to approximately EUR 146 million.
If it were to build the theater with its own funds, the Municipality would have to spend 20% of the total budget and almost a third of its revenues, while all capital expenditure per year amounted to around € 50 million.
Where does your income come from?
City revenue has increased significantly in the past 3 years.
The main source of revenue for the Municipality’s budget since 2017 is the tax on the impact of new construction infrastructure. For 2019, the Municipality of Tirana in December estimated to expect to collect LEK 6 billion from the tax on the impact of the infrastructure for new buildings, or 52% more than expected at the beginning of the year ( 15% more than in 2018 -S). According to the report, the revenue realization from this tax exceeds the approved plan following applications beyond the forecasts by the responsible structures.
For several years, the budget of the Municipality of Tirana has become very dependent on the revenue it receives as a result of building permits. The record was set in 2019, with almost 45% of its revenue.
In total, the area assigned for building permits for 2019 in the capital, according to INSTAT, was about 1.5 million square meters, an increase of 55% compared to the previous year and marking a record level at least since 2010, when detailed data by districts are reported.
The second most profitable tax is on property for businesses and individuals, equal to 14.2% of the total, followed by a cleaning tax of 13.8%. Education brings 5.5% of revenue. In recent years, parking revenues have also increased by 3.4%.
Expectations for 2020
In the initial budget, the Municipality has planned to collect LEK 14.6 billion from its resources this year , with an increase of approximately 8% from 2019 expectations, in which taxes on the impact of infrastructure are expected to have again the main weight, with almost a third of its revenues, indicating that the Municipality plans to issue high-speed building permits. The Financatvendore.al portal, which monitors the finances of the municipalities, has often warned that this trend indicates a high dependence of the local budget on this tax and an increase in risks depending on its cyclical nature.
In total, including transfers, the expected revenues for the Municipality of Tirana were LEK 20 billion by 2020.
But the revenues, especially those from taxes and duties, should be much lower than expected due to the situation created by Covid-19. The same municipality has announced that the space tax for bars and restaurants for May-June will be removed. In 2019, a total of 390 million ALL were collected from this tax, equal to approximately 3% of its revenues. But other rumors are expected to decline, as the economy is expected to shrink dramatically this year, affecting firms’ ability to pay . Unlike the central government, municipalities spend what they have and cannot create deficits, so a reduction in revenue will automatically lead to a contraction in spending.
How money is spent
In 2019, 37% of total expenses (including transfers) were allocated to capital expenditure.
Personnel costs represent a relatively high share in the Municipality of Tirana, with around 30% of the total for 2019-. 5.5 billion ALL were spent on salaries and insurance that year, while by 2020 this item is expected to increase by around 7% to 5.9 billion ALL.
The rest relates to operating expenses and internal transfers.
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