RIGA, Dec 3 (LETA) - The new administration of the central Latvian municipality of Jelgava worries that the local government might not be able to settle its liabilities to service providers and employees.

As the municipal authority informed LETA, UIdis Ainars (New Unity), who in September was elected chairman of the Jelgava municipality council, has found that at the end of 2024 the municipality is faced with challenges caused by the decisions taken in 2022-2024, namely, expenditures to ensure the municipality's basic functions have been higher than basic revenue.

Consequently, in a few months' time, the Jelgava municipality risk ending up in the situation where it will be unable to pay to its services providers and employees.

According to Ainars, the municipality has found itself in such a financially troubled situation partly because the wage bill in the municipal budget has considerably increased lately. The municipal mayor claims that for two consecutive years, in 2023 and 2024, the increase has been one of the fastest in Latvia, while budget revenue, primarily from personal income tax, has not been growing so fast. The payroll budget, as a percentage of revenue for core functions, has increased from 47.6 percent in 2022 to an indicative 60 percent in 2024.

"The account balance at the end of 2023 was EUR 10 million, thanks to higher than planned personal income tax revenue and lower spending. There was a misleading illusion that this situation would continue," Ainars said.

He also informed that the municipality's spending on core functions in 2024 is estimated to exceed revenues by between EUR 2 million and EUR 2.5 million. Ainars is believes that financing core functions with money made by selling municipal property is a wrong practice.

"Realizing the seriousness of the situation, we met with experts from the Finance Ministry. The discussion led to the conclusion that we are not the first municipality to find itself in similar difficulties and that the cause is a disproportionate increase in the wage bill in previous years," the chairman of the municipal council said.

The only solution is to cut costs and borrow for budget and financial management, as provided for in the Law on the State Budget and Budgetary Framework. To obtain these loans, certain steps must be taken, both in terms of cost reduction and in terms of commitment to cost reduction.

"The first steps to reduce costs are being taken in the form of preparatory work to give up rented premises, a freeze on vacancies, monitoring purchases and others. Is it enough? It is already clear that it is not," said Ainars.

He added that it is premature to talk about the austerity measures that will be taken, but a condition for receiving support from the state in the form of a loan is a plan to cut costs.