Rīga Mayor: money sharing among municipalities has gone wrong

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The equalization of finances among municipalities in Latvia has gone completely awry, Rīga Mayor Mārtiņš Staķis said in an interview with Latvian Television February 1.

The Law on the Equalization of Local Government Finances, in force since 2015, stipulates, in simple terms, that some municipalities pay into a fund and others receive from it, based on the socioeconomic situation of the municipality and its needs, in order to diminish inequality.

Staķis expressed frustration at the fact that Rīga will have to pay €125 million from its budget for this year to other municipalities in the system. According to him, if such sums of money are taken, the capital's needs will not be met.

In his view, the financial equalization system has gone completely wrong at the moment, since the funding is also received by local governments which need it not for basic but for additional functions.

The principle of financial equalization is to provide additional funding to municipalities that do not cope with basic functions. "At the moment, however, local governments that have no problem with basic functions are receiving [funding from the equalization fund]. Liepāja, Ventspils, Sigulda, Ogre, Jelgava. All these cities are beneficiary cities, and here's the question whether this money, which is currently being distributed, serves the purposes for which this law was intended," said Staķis.

This Friday, February 3, Staķis plans to meet with Finance Minister Arvils Ašeradens (New Unity) to discuss the regulation of municipal financial issues and possible changes to the system.


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