Regional financing, population and depopulation. Some ideas to unblock the situation

The finances of the fifteen autonomous communities of the “common regime” (all except Navarra and the Basque Country, with which the so-called “foral regime” operates) are today managed by the system approved by Law 22/2009 of December. The 18th amendment, whose seventh amendment mentions a “five-year review” that was due to take place in 2014 but did not begin until 2017, when a commission of experts created at the request of the Conference of Autonomous Heads submitted a technical report. Various reform proposals (including some dissenting views on various issues) . Since then, the Spanish Government has only announced at the end of 2021 that the so-called “adjusted population”, that is, the public service needs that the System must meet, is nothing more than the first step towards the possible construction of a new financing model. This document led to widespread rejection by various regional governments, regardless of their ideological orientation, who presented a wide range of, sometimes contradictory, arguments regarding the criteria proposed by the central Executive.

The current regional financing system is on track to turn fifteen years old, with no prospect of reform on the horizon. The high level of political conflict between the two main political parties in Spain, one in the central government and the other in twelve of the fifteen autonomous regions of the common regime, does not seem to define a suitable context for a political party. agreement between them; Whatever the political sign of their government, the inequality of interests between communities makes it very difficult for any reform to gain broad support from the affected administrations.

Given the difficulties of achieving significant reform of the system, it is likely that the Government will decide to negotiate the reduction of regional governments’ debts to the central government in the manner agreed by the PSOE with the ERC in 2015. Investment agreements seek a mechanism for autonomies that do not need state support to benefit from this formula in years when borrowing in the markets is very difficult. Meanwhile, the Spanish Government, depending on the circumstances or its political expediency, may also approve additional resource injections, such as the one it initiated to face the economic consequences of the pandemic (although not all of the transferred resources are well developed). Autonomous communities make it unnecessary to resort to this method for the time being; This cannot be ruled out if the economic situation deteriorates significantly and the reform of the 2009 system continues to lag).

Graph 1 shows the difference in situations that arise under the current system. It represents the per capita income of different communities relative to the 2022 Spanish average and the per capita financing of the system in 2021, the last year available, also expressed relative to the average (taking into account the adjusted population, and not the actual one, as an indicator of the need for public services in each region and after correcting power inequalities due to which some autonomous governments had to finance more powers). Thus, there are communities with above-average per capita income and above-average income earners (five in the upper right quadrant); others with below-average income per capita and above-average resources, which seems in principle desirable from the standpoint of interregional solidarity (six in the upper left quadrant); There are those with below-average per capita income and below-average earners (the quadrant in the lower left quadrant), which does not seem very fair if the idea that the autonomous financing model should contribute to correcting income inequalities is supported. .

This situation is reflected in the discontent that has arisen since the current system, with minor changes, came into force, with relatively poor autonomies such as the Valencian Community receiving less than average; but there are also complaints that those who, because they are relatively wealthy, earn more than the average, consider the degree of interregional solidarity to be excessive; This is, of course, something that is not shared by the relatively poor and earners. above average..

However, the redistributive capacity of the financing model is not the only reason for debate among regional managers. Sometimes the largest differences arise due to differences in the costs of providing public services depending on the distribution of the population in the region. Chart 2 reflects the weight and population of each province in the region of the Spanish State. The large demographic concentration in some relatively small provinces is notable (primarily in Madrid or Barcelona; but also in Valencia, Alicante or Málaga), while some very large provinces, such as Badajoz, Ciudad, Cáceres or Cuenca, have very small populations. Therefore, in Spain provinces such as Soria or Teruel, with approximately 9 inhabitants per square kilometer, coexist with other provinces such as Madrid, with 856 inhabitants per square kilometer; Barcelona has 750 inhabitants per km²; Bizkaia has 520 inhabitants per km²; or Alicante with 336 inhabitants per km².

In the light of these data, we can understand the difficulty of reconciling the positions of those who argue that regional financing should be based on a more or less homogeneous distribution of resources per capita, so that differences around the average should be small. all citizens have the right to benefit from the same financing wherever they live; and those who argue that the provision of public services is more expensive in less populated areas, and that, as a result, communities with fewer populations and more dispersed populations should receive more resources per capita.

In my opinion, the only way to resolve this contradiction is to start by separating the answer to both approaches, rather than trying to provide a single solution through a confusing calculation procedure involving the distribution of the resulting resources, as the current system does. It does not seem to respond to any criteria: nor does it guarantee a fair distribution of resources based on homogeneous indicators; nor does it articulate corrective mechanisms that, for example, bias in favor of low-income communities; It does not define a clear method that systematically reflects the cost differences arising from the distribution of the population in the region.

On the one hand, I believe that basic financing per capita should be defined, more or less uniformly, based on indicators of the need for public services, mainly on the population receiving these services, and sufficient resources should be provided to meet a certain level. Minimum services (may change over time). To do this, it will be necessary to reach a certain consensus around the variables used to determine such indicators of need (for example: are university expenses calculated based on the number of current or potential students? and, if so, from the latter?), including students enrolled in the final years of secondary education in the autonomous community Are student transfers from/to other regions taken into consideration?

On the other hand, I think that a complementary financing mechanism explicitly aimed at covering the extra costs caused by situations such as area expansion, demographic dispersion or population loss can be clearly expressed using a sufficiently permissive set of indicators. Quantify the size of the extra costs involved. In this way it will be clear that the system offers more or less homogeneous financing per capita to all communities but at the same time transparently recognizes the need to compensate for extra costs arising from factors such as: as mentioned above (something that does not happen in the current system, leading to endless debates about the extent to which per capita finances should be equalised).

The complementary mechanism should logically not exclude any autonomy, so that it would also support densely populated communities that may experience problems of demographic dispersion or depopulation in parts of their territory (as occurred, for example, in the Comunitat Valenciana, in the interior of Italy). Castellón). However, in the end, it will be inevitable to see a high dispersion in the distribution of the funds produced by this mechanism, considering the inequality that can be seen in terms of concentration between them in the per capita resources transferred to different autonomy. population and region (in fact, less populated regions are normally allocated more funds per capita). To implement this, a minimum consensus must be built around the variables used to measure a technically not easy phenomenon such as population distribution (which is not the same when measuring the impact on the cost of providing public services, for example, when a certain number of people reside in two medium-sized population centers very far from each other; the same number of people being located in smaller but closer population centres) and additional recognized costs related to the relevant parameters.

Finally, but no less important, is the degree of interregional solidarity (making appropriate adjustments), which will depend on the percentage of resources pooled in each autonomy that are included in both the core and complementary systems and integrated into the distribution. The decisions of each regional administrator on tax matters are entirely dependent on its own budget balance and the contribution of the Central Government from its own revenue is taken into account. In my opinion, the basic financing system should be covered mainly by the resources provided by the taxes transferred to the autonomous communities and, as stated before, the needs of the population receiving services. should be redistributed among them according to their indicators. On the contrary, the complementary mechanism should be provided mainly by revenues collected by the central administration; because it should be formulated as an instrument of State action against problems related to depopulation, geographical dispersion, degradation of the rural environment, deterioration of the rural environment, absence of the rural environment. services etc.

Everything that has been said has no purpose beyond being a first contribution towards the search for a formula that is both politically and economically viable. Not easy.