The coffers of the Local Government Authorities, have a "hole" of €226 million, with the Municipalities with the largest populations owing the most. The actuarial deficit of €226 million in the Municipalities, the number of which, in the context of the Local Government reform, was reduced from July 2024 to 20, is particularly a headache for the Ministry of Finance, as to this are added the loans and their other obligations to the state and banks, which exceed €0.5 billion.
According to data submitted by the Local Authorities, the long-term liabilities of the Municipalities to the government and credit institutions amount to €529 million. Therefore, these obligations bring the total bill to €755 million, with the state being exposed in case something goes wrong in the Municipalities.
Compared to this year, the actuarial deficit in the funds of the Municipalities next year is increased by €25 million, as in 2026 it was €201 million. In contrast, their long-term liabilities decreased by €69 million, as they amounted to €598 million. However, some of the loan obligations of the Municipalities that bear a state guarantee are repaid by the state.
Risk to taxpayers
The financial burdens of the Local Government Authorities are under close monitoring by the state authorities, in order to deal with the consequences in case the situation is derailed.
According to the Fiscal Risks Report, which accompanies the 2027 state budget, in the event that a Municipality is unable to cope with its obligations to the employees, then the state and, by extension, the taxpayers will be asked to pay the bill.
That is, the state will cover the obligations of the Local Authorities and the salaries of the employees.
Payroll the biggest burden
Today, 4,035 employees work in the 20 Municipalities, with personnel costs reaching 34% of their total expenses and constituting a significant part of their expenses.
For example, in a Municipality with a population of less than 20,000 citizens, the average annual salary per employee amounts to €37,314, while personnel costs reach 29.5% of total expenses.
At the same time, the average salary of an employee in a Municipality with a population of up to 40,000 inhabitants is €32,694 per year, with personnel costs accounting for 28.21% of total expenses.
Besides, the average annual salary of an employee in a Municipality with a population of more than 40,000 citizens is €37,327. It is noted that personnel costs constitute 38.67% of the total expenses of the Municipality.
However, state sponsorship is a significant part of the total revenues of the Municipalities, which makes them financially dependent on the state.
EOA: Employees at 1,300
At the same time, the number of employees in the five Provincial Self-Government Organizations (EOA) amounts to 1,298. In 2025, based on the philosophy of the reform, no sponsorship was granted to the Organizations to cover their operating costs, as they should be self-financed.
However, the state granted individual sponsorships or transfers for specific purposes. It is noted that the payroll of the District Organizations covers about 14% of their total expenses, while the rest of the operating expenses correspond to about 71%.
Reform failed
As it has been shown in practice, the reform of Local Government, instead of bringing savings, increased the expenditures paid by the state. For example, before the reform, the state grant was €105 million, while this year it amounted to €117 million.
Last summer, the Union of Municipalities and the Ministry of the Interior were in the trenches over the amount of state sponsorship. Although the issue still remains open, funds of €191 million have been included in the state budget for 2027.
Of these, an amount of €117 million concerns the state sponsorship to the 20 Municipalities in the free areas, €5.3 million the occupied Municipalities and communities, €18.5 million. The Community Councils of the Free Areas, €3 million community service clusters, €15 million a grant to the Municipalities for road maintenance and €12 million the Local Authorities for the loss of revenue from the licensing of developments.
Measures to address risks
The state, in an effort to deal with the risks to which the Local Government Authorities are exposed, takes a series of measures, which focus on ensuring stable revenues, controlling their operating expenses, collecting arrears, financing pension fund deficits, as well as defining strategic planning.
In detail, according to the Fiscal Risk Report, the risk mitigation measures are as follows:
• A key parameter of the Local Government reform, which was implemented in July 2024, is that Municipalities and NOAs should be able to gain financial autonomy, with a gradual reduction in their dependence on the central government. Achieving this objective requires ensuring sufficient and stable revenues, combined with effective expenditure control.
• The control of operating costs and especially personnel costs can contribute substantially to the improvement of the financial viability of Local Government Authorities.
• The intensification of actions for the collection of arrears to the Municipalities and the provision of additional tools, legislative and otherwise, to improve collectability would contribute to the mitigation of fiscal risks.
• The development and implementation of medium to long-term strategic planning for a more rational operation of the Local Authorities, according to the financial capabilities of each Municipality and EOA. In particular, each Municipality and EOA must prepare and implement a realistic and rational budget within its financial capabilities.
• In order to fully finance the Pension Funds and eliminate the deficits, the Municipalities should, through long-term planning, finance their actuarial deficit in a way that is manageable and financially viable. Also, actuarial studies should be updated at reasonable intervals, so that the Municipalities are informed about the differentiation of the amount of their contribution.
• As of December 2022, the new legislation on the Special Pension Benefit Payment Fund came into force, which was established under Article 10 of the Occupational Pension Benefits Plan for Employees of the State Service and the Wider Public Sector, including Local Government Authorities, and which, in the long run, is expected to virtually eliminate the risk.
