Porto Alegre 2007 budget: an exercise in fiction

Transcription

1 Porto Alegre 2007 budget: an exercise in fiction Paulo Muzell Economist Member of the Coordination Board of Cidade Centro de Assessoria e Estudos Urbanos November 30, 2006 Last October, Mayor Jose Fogaça submitted his budget law proposal for 2007 (LOA ) to the City Council. Almost two years after he took office, this is an opportune moment to evaluate how well Fogaca accomplished his budget goals in 2005 and 2006, and what he intends to do next year. In Brazil a public budget is only a proposal: revenues are estimated and expenses are authorized, but they may or may not materialize the following year. We need to examine what was actually implemented in 2005 and part of 2006, and compare how closely they met the intended goals of the approved budget, as embodied in the Lei Orcamentaria Anual (LOA) for each of these years. For a citizen, a participatory budgeting participant, a less attentive alderman or a municipal employee, the figures reflected in LOA 2007 seem promising: they tend to indicate good prospects for the coming year. The LOA 2007 promises a huge revenue increase of 16% in nominal terms, and about 12% higher than the inflation rate 1 The Executive submits the Local Budget Law, Lei Orçamentária Anual (LOA) to the local parliament on October 15. This used to be September 30, but Mayor Fogaca obtained approval for a local law that changed the deadline to October 30. The law also changed the deadline for submitting the pre-budget statement, the Guidelines Law, or Lei de Diretrizes Orçamentárias (LDO).

2 estimated for It also projects a significant volume of investments worth 310 million reais (approximately 150 million US dollars), or about 13% of what is also deemed to be a growing current revenue base. The projections seem sound. After all, more income could facilitate more investments; an increase in projects specified in the Plan of Investments (PI); and an expansion of programs in priority areas like education and health. Moreover, with political will, the Fogaca administration may be able to improve the wages of municipal employees who have been demanding a 16% increase in salary, to compensate for the 18-month period between 2003 and 2004 when their wages were not adjusted for inflation (at that time measured by IGP-M, the index used for the bimonthly correction of municipal employees wages in Porto Alegre). Unfortunately, if we examine what happened these first two years of the Fogaca administration, there is hardly any reason for optimism. The modest accomplishment rates in budget execution contrasts sharply with what is projected for Let us go to the figures, beginning with capital revenues. Capital revenue is a type of extraordinary income arising mainly from credit operations, and it is fundamental for accomplishing the programmed investments (PI) for the year. The 2005 budget law estimated a total of 297 million reais in capital revenues. But during the same year, the Fogaca administration realized only 30.8 million reais, less than 10% of the envisioned amount. The 2006 budget law estimated a more modest capital revenue of 90 million reais. But as of August 31, 2006, the Fogaca administration has raised ZERO capital revenues. This performance partly explains the low volume of total investments from January 1, 2005 to August 31, 2006, certainly the lowest level in the last 15 years. In 2005, only 105 million reais (50 million US dollars) were invested, one third less than in 2004 (already low). Considering the current value of the real, this means almost 50 million reais less. The record for 2006 is worse. The LOA 2006 projected an amount of 215 million reais for investments. But as of August 31, 2006, only 53 million reais worth of investments has been undertaken. This implies that the investment volume of 2006 would even be smaller than in 2005, since the total investments up to August 31 of this year amounts to less than 4% of total expenditures for the same period. The execution of investment plans (PI) in almost 2 years under Fogaça contrasts with the highly optimistic 2007 targets. The only provision for 2007 that seems consistent with recent trends is the amount of funds being allotted to participatory budgeting regional demands, in the 2007 Plan of Investment. It is projected to be around 30

3 million reais (approximately 14 million US dollars), or less than 10% of the total investments estimated for This contrasts with the previous decade when participatory budgeting demands were allocated 30% to 50% of total investments and the entire budget was submitted to participatory budgeting discussions. Budget Item 2005 Executed Budget LOA 2006 LOA 2007 Proposal Current Revenues 1,999 2,067 2,562 (1) Capital Revenues * 113 Total Revenues 2,030 2,157 2,675 Wages & Pensions 1, (2) 904 (3) Investments ** 310 (4) Debt Service * As of 31/08/2006, only R$ 5,2 million (5.7% of LOA 2006 estimate) worth of capital revenues has been realized ** As of 31/08/2006, only R$ 53 million (24.6% of LOA 2006 estimate) worth of investments has been made; (1) Deducting R$ 160 million in intra-budget transfer revenues, the actual figure for current revenues becomes R$ 2,462 million, 20% above 2005 and 16.2% above 2006 estimates. This expected R$2,462 million is clearly overestimated (there is no fiscal news to support it). (2) Since 2005, expenditures for retired and inactive civil servants have been registered as a different budget item. If the R$ 330 million expenditure for this item is included (the 2005 Budget Report registers a R$ 37 million expenditure), this will raise the total amount to R$ 1,070 million (5.5% above 2005). (3) If the R$ 349 million expenditure for retired and inactive civil servants is included, this will increase the total amount to R$ 1,251 million. (4) This is an overestimated figure. Note that investments actually undertaken in 2005 only amounted to R$ 105 million. In 2006, investments reached only R$ 53 million by August 31. Therefore, the projected R$ 310 million investments for 2006 is unrealistic and has no factual basis. The same trends are evident with the total current revenue estimates. For the first 20 months under Fogaca, current revenue growth rates were modest -- about 3.5% above inflation rates, measured by IPCA. For 2007, the government envisions a three-fold increase in current revenue growth rates, 12 percent above inflation. Yet a closer look at its estimates for two major sources of revenue belies these official forecasts. These revenue sources are the property tax or Imposto Predial e

4 Territorial Urbano (IPTU), which is collected by municipal authorities, and the VAT or Imposto sobre a Circulação de Mercadorias e Serviços (ICMS), which is collected by the State but 25% of which goes to municipalities. With the provisional tax increase ( tarifaço ) implemented by the State under Governor Germano Rigotto expected to end this year, the ICMS will be reduced annually by around 1 billion reais (470 million dollars) at the State level, beginning in This means that the Fogaca government s estimates of a 15% increase in ICMS returns to Porto Alegre will not materialize. The same can be said about the IPTU: if recent IPTU collection rates are to be used as basis, then this does not justify the projection of a 15% increase. It certainly will not occur. The municipal employees who have been demanding compensation for past salary losses, received, in response, an acceleration in the outsourcing of services. In 2005, the Fogaca government spent a total of 503 million reais (240 million dollars) to pay for the services of consultancy groups, experts and other firms or individuals. The LOA 2006 authorized an expenditure of 533 million reais for outsourcing and the LOA 2007 proposal increased this to 674 million reais. If the Porto Alegre City Council approves this item, this will mean an increase of 24% above inflation on outsourcing in just 2 years, equivalent to almost 30% of the current revenue for this year. The figures presented leave no doubts: this is a government that invested very little, that made fiscal adjustments mainly by reducing expenses, and that profits through the sacrifices of public employees, refusing to compensate them for past wage losses while increasing social security taxes on wages. It is a government that prioritizes a few ones, the ones that already get a lot, the "home people," bearers of the highest positions in the bureaucratic hierarchy, to whom it grants special bonuses. The wages of top level civil servants are expected to increase further, for example, with the adoption of the program Gratificação de Resultado Fazendário (GRF) which is essentially a bonus for achieving fiscal targets. This absurd program, created through a law proposed by Mayor Fogaca, aims to use 20% of the expected increase on current revenues to reward only 2% of the municipal employees, or the fiscal agents. And what about the remaining 98 percent? What about the more than 500 projects of participatory budgeting which citizens have been waiting in the last 3 to 4 years to be implemented? The GRF law, approved last October, does not specify the sources of revenue or the figures that should be reached, leaving this to a future mayor s discretion. Incredibly, although the law was approved in October 2006, it will affect the wages of municipal fiscal agents retroactively starting January Consultations on this issue with participatory budgeting delegates or the municipal employees union were never done. Apparently not satisfied, the same government

5 cuts the meal ticket provisions and overtime payments for workers who undertake garbage collection and similar functions for the city. Citizens should not be surprised by the evident reduction in the quality of these services. This is a government that invests little, outsources municipal services, and increases salary inequities among public employees. Those who already get more will still have more. The ones who get less or 90% of municipal employees -- will have even less. They will be submitted to a management shock. Their wages will be revised" to see if it would be possible to take out some "improper" salary advantages. Say no more! With his 2007 budget proposal to the City Council, Mayor Fogaça promises to do what he certainly will not do.