2022 Barometer of the financial health of local authorities: A real rebound, but uncertainties remain

The AFL is the first institution to have analyzed the 2021 financial data allowing it to also qualify the extent of the recovery observed in 2021 after a year marked by the health crisis.

Find the 2022 Barometer on the AFL website here.

The third edition of the AFL Barometer

The Barometer, based on data from the Directorate General of Public Finances, aggregates the scores of each local authority to assess the financial health of the last five years. After a year 2020 placed under the sign of the health crisis, the recovery dynamic was the main challenge for 2021: were we going to find the overall trend of improvement observed until the crisis?

“The course set last year in local authorities has been maintained: take counter-cyclical measures to limit the economic effects of the crisis, while promoting ecological, social and digital transition in our territories. The heterogeneity between communities, however, remains., recalls Pia Imbs, Chairman of the AFL-ST Board of Directors.

The 2022 edition of the Barometer makes it possible to take the measure of this financial disparity.

The year 2021 for local finances: a real rebound covering a wide disparity of situations

Solidity and resilience characterize the financial situation of local authorities in 2021. The average financial score of all local authorities is increased this year to 2,88, an uninterrupted progression since 2016.

How can this improvement be explained? The economic recovery observed in 2021, combined with the maintenance of budgetary support mechanisms, has created a favorable context for local finances.

Tax and tariff receipts, in particular, experienced a marked increase.

However, this good overall impression covers a wide variety of situations depending on the level of population and the nature of the communities. The Departments and Regions have experienced very pronounced changes in their ratings for two years, at the same time as very high volatility within each group. The Communes and the EPCIs experience greater overall stability, nuanced by clear differences between the different demographic strata: the most populated Communes show situations that are generally more degraded. From a geographic perspective, communities in the West are seeing their situation improve more markedly than communities in the rest of the country.

What outlook in 2022 for local public finances?

A first lesson is emerging: the crisis has not been without consequences for local budgets, but the damage is less significant than one might have feared. A majority of communities have managed to overcome the health crisis.

The financial situation of local authorities in 2021 benefits from a favorable context, but mainly due to the economic recovery and the maintenance of State support systems. The general degradation of the economic environment attributable to the conflict in Eastern Europe will not be without consequences for local authorities. Among the repercussions already at work, the slowdown in growth and the upsurge in inflation are contributing to darkening the outlook, no doubt in a lasting manner.

The Municipalities confirm a financial solidity inversely proportional to their size

The Municipalities continued in 2021 to show undeniable financial solidity, in constant progression over the last six financial years, and less than 3/7 since 2019. The financial indicators of all the Municipalities attest to an improvement in 2021, due good overall financial management: reduced debt reduction capacity (4,5 years), rising gross savings rate (16,4%), and debt ratio of 74,1%.

The financial health of the Communes remains a function of demographic size: we note that the Communes display scores that are all the higher as they have few inhabitants. It is noteworthy that the most populated municipalities (more than 20 and more than 000 inhabitants), whose finances had suffered the blow of the downturn in 100, are experiencing a net rebound in 000. It should be noted that the municipalities with more than 2020 inhabitants represent less than 2021% of French municipalities, but nearly half of municipal investments.

Financial health of intermunicipalities: heterogeneous trajectories

2021 saw the stabilization of the rating of Groups with own taxation (GFP) after several years of growth. Within this segment, the particular situation of the Communities of Municipalities raises questions: this is the only type to see its average rating deteriorate, as a result of growth in real operating expenditure (DRF) stronger than that of real revenue. (RRF) and a steadily growing stock of debt. The Agglomeration Communities, the Urban Communities, the Metropolises and the Territorial Public Establishments benefit on the contrary from a more favorable dynamic. Here again, the geographical heterogeneity is very strong.

A rebound, still fragile, in the financial health of the Departments

The Departments' budget year in 2021 was atypical, with a high level of operating expenses and revenue, and a strong increase in their savings capacity. The rebound compared to the previous year is very clear, and allows the departments to find the trend at work before the crisis. The average score of the Departments is 2,56 in 2021, compared to 3,16 in 2020.

Overall, the Departments benefited in 2021 from a significant increase in their RRF, thanks to an active real estate market which led to strong growth in transfer taxes. The savings capacity of the departments is logically progressing, while the stock of debt is stabilizing.

The overall progress is contrasted according to the territories, the Departments of the Atlantic coast experiencing a significant improvement which contrasts with the more fragile financial situation of the Departments of a vast north-eastern quarter of the country, or the Departments of the Ile-de-France region.

The regions see their financial situation recover in 2021

After suffering a violent budgetary shock in 2020, the Regions achieved a real recovery in 2021. However, there is no return to the pre-crisis financial situation. Efforts to support activity, combined with a contraction in tax revenues, have had an impact on regional debt and RRFs that the 2021 recovery has not erased.

The barometer also sheds light over time on the structural difference between the Metropolitan Regions and the Regions/CTUs of Corsica and overseas.

Find the 2022 Barometer here.