Estonia plans to change municipal funding system from 2027 — ERR News
Estonia plans to change the funding system for local authorities from January 1, 2027, giving municipalities greater independence in allocating funds. At the same time, in the first year after the transition, some rural communities may receive less money than under the current model, ERR News reports.
Funds without designated purposes
Currently, local government revenue consists, among other things, of a share of residents' income tax and approximately €122 million from the state support fund. These funds have designated purposes, and their amount has not changed for ten years.
Under the proposed reform, this sum is to be removed from separate earmarked budget items and included in municipalities' general revenue base. Communities will be able to decide independently which needs to allocate the funding to. Going forward, the amount of these funds will also change along with income tax revenues.
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Hardi Alliksaar, head of the local government department at the Ministry of Regional Affairs, said that the draft has already been coordinated and that he expects ministerial approval for it to be submitted to the government and then to Estonia's parliament, the Riigikogu.
Request for compensation for communities
The Association of Estonian Cities and Municipalities is asking for €3.4 million to compensate those local authorities that will lose part of their revenue in the first year of the reform. Saue municipality mayor Andres Laisk, who heads the association's working group on financial and tax policy, stressed that this is a one-off sum intended to ease the transition period.
Alliksaar noted that no decision has yet been made on allocating €3.4 million, but that this amount was not a prerequisite for further consideration of the bill. Jõelähtme municipality was named among the communities that may lose funds during the transition. Its mayor, Andrus Umboja, said that the community would fulfill its obligations, including repairing roads and funding schools' needs, but raised the issue of equal treatment of municipalities.
