The town hall of Paris found itself very deprived when the crisis came, one would be tempted to write to paraphrase La Fontaine. So we are exaggerating (a little), but the financial situation of the city of Paris will no doubt animate the next Council of Paris, as was the case during the previous one (from February 8 to 11). The opposition brandishes the figure of 6.6 billion in debt in 2020 while the municipality assures that everything is under control and that it is the fault of Covid-19 and the disengagement of the State. Obviously there is true and false everywhere, but let’s try to see more clearly based on the report of the Regional Chamber of Accounts.
Before going any further, it is important to understand how the budget of a local authority like the town hall of Paris works (10.1 billion euros). Basically, on the one hand there are operating expenses (salaries, operating costs, etc.) for 8.2 billion euros and investment expenses (1.9 billion). To finance the former, the town hall collects operating revenue (taxes, transfer duties, nursery fees, etc.). Normally these more than cover operating expenses and the surplus is called cash flow or gross savings. The latter is used to finance investment expenditure. In general, and this is a normal situation, it cannot finance them entirely, which is why the community resorts to borrowing to complete.
How to invest when you don’t have the money?
However, under the Hidalgo mandates, the Paris City Hall decided to pursue an ambitious investment policy, for example the renovation of the Eiffel Tower site. A political choice that makes sense. But problem, the town hall of Paris does not have a very high gross savings. The Regional Chamber of Accounts (CRC) also indicates that “the comparison of gross savings rates [rapport entre épargne brute et recettes de fonctionnement] with Lyon and Marseille reveals the permanently weak character of the self-financing of the City of Paris”. Thus, from 2015 to 2019, according to the figures in the report, the rate never exceeds 7% in Paris when it never drops below 10% in Lyon and Marseille.
To finance “an ambitious investment policy with a cumulative expenditure of 6.994 billion euros from 2015 to 2019”, the town hall has used two main means. The debt, which rose from 4.67 to 6.62 billion euros between 2015 and 2020. And the sale of the city’s heritage. “The City made just over a billion euros in sales between 2015 and 2019”, specifies the CRC. “The sale of family jewels”, as denounced by Marie-Claire Carrère-Gée, opposition adviser and president of the finance commission at the Council of Paris.
Not affected by property tax
But as these two solutions are not sustainable over time, the town hall of Paris is trying to inflate its operating revenue. And we sometimes have the impression that she is trying to make drawer funds with a taboo, the property tax rate – quite low in Paris – because “the municipality is attentive to the purchasing power of Parisians”, according to Paul Simondon, deputy mayor of Paris in charge of finance. But for the rest, the City scratches where it can. For example, it “claims from the public establishment in charge of the restoration of Notre-Dame a royalty for occupying the public domain of 25 million euros per year”, Marie-Claire Carrère-Gée annoys. A legitimate request under the law but which has caused controversy.
It is also the technique of capitalized rents. Thus, explains the CRC, “the City of Paris entrusts Parisian social landlords with housing so that they are paid into the social housing stock”. It does this via long-term administrative leases. However, the city of Paris can “request from social landlords the capitalization, in a single payment, of all the fees due over the duration of the leases [conclus le plus souvent pour soixante ans] “. The funds thus recovered are normally assigned to investment income but, subject to a government derogation (which the town hall always obtains), they can appear in operating income. An accounting trick that “allowed the City of Paris to balance its budget”, notes the CRC, which nevertheless specifies that the City “has been deprived of funding resources for the future on a long-term basis”.
“It will rain on the Parisians”
Always in search of new revenue, “the town hall increases everything that is not seen on the tax sheet, denounces Marie-Claire Carrère-Gée. There is the creation of a new parking tax on motorized two-wheelers, the authorization of temporary occupation for removals which became payable on 1 March, the abolition of periods of free zones, paid parking extended to Bois de Boulogne and Bois de Vincennes, and the project to reform the fees paid by merchants. “And Marie-Claire Carrère-Gée to conclude:” It will rain on the Parisians! »
On the other hand, Paul Simondon promises that the financial situation is “healthy and improving”. But above all he denounces a “disengagement of the State which produces a shock in receipts”. Thus the famous DGF (global operating grant) paid by the State to the town hall has collapsed (from 1.2 billion in 2013 to 53 million in 2020) while horizontal equalization has been reinforced, forcing Paris to give more to disadvantaged towns. And more technically, the various territorial reforms have led to the transfer of shares of the contribution on the added value of companies (CVAE, former business tax) to the Greater Paris Metropolis and the region. Of course the town hall of Paris receives compensation, but fixed, while the proceeds of taxes tendentially increase. “In total, the cumulative effect of the reduction in the DGF (610 million euros), the strengthening of equalization (384 million euros) and the loss of earnings on the evolution of the CVAE (190 million euros) represented for the City a loss of revenue of 1.184 billion euros in 2020”, writes the CRC. Which is a lot.
The Covid is expensive, very expensive
Added to this is the inevitable health crisis, which has had a double negative effect on Parisian finances. First, the town hall incurred additional expenses to fight the epidemic and then the crisis affected revenues, such as the tourist tax. “This resulted in a net cost (estimated by the City at 710 million euros) which is entirely at the origin of the gross savings deficit in 2020 and the increase in debt (5.88 billion euros). euros at the end of 2019 to 6.62 billion euros at the end of 2020),” the CRC report states. And Paul Simondon to point out the weak state support. “Unlike cities like Nice or Toulon, we have hardly touched anything from the Recovery Plan, only 30 million, laments the elected official. And the state does not even keep its commitments. We spent 50 million euros for masks that the state had undertaken to reimburse up to 17 million. And on the pretext that we distributed it to city officials, we only received 2 million euros. An appeal is also underway on this subject.
And for the 2022 budget, it’s already getting complicated. “The government’s derogation concerns amounts of capitalized rents lower than expected, so the municipality will have difficulty in achieving balance,” predicts Marie-Claire Carrère-Gée. Similarly, the town hall had planned 39 million euros in revenue for paid parking for two-wheelers, but this was postponed to September… Faced with these difficulties, and more generally, Paul Simondon hopes that “the question of the financial autonomy of Paris will be raised with the next president”. Since the favorite in the polls promises to abolish the CVAE, it does not take the right direction…