Local government debt 2016 CONTENTS Foreword 3 Appendix 1: Investments 4 Borrowing debt per inhabitant and local government authority 14 Local government sector borrowing debt 8 Appendix 2: In-depth section 1: Gross investment per local government authority The market for local government loan financing 12 and inhabitant 16 In-depth section 2: Appendix 3: Local government sector debt management 13 SALAR’s categorisation of municipalities 17 About Kommuninvest’s report series The report series “Local government debt”, • Local government sector companies account first published in 2013, portrays the develop- for half of the sector’s investments and the ment of local government investment and debt. bulk of the external debt. The data on which the reports are based are • The capital-intensive companies in the local unique since both investment and debt are ana- government group often operate in compe- lysed from a group perspective. This means titive markets, meaning that the municipali- that operations conducted under company for- ties’ and county councils’ business risks are mats are also included in the data. Accordingly, increasingly borne by the companies rather the relationship between the trend in invest- than the core operations. ment volumes and borrowing in the local government sector is elucidated at both the The supporting data in this report are based national and local levels. on details gathered directly from the muni- The group perspective is important in cipalities’ and county councils’ own annual obtaining an accurate overall picture of reports. This is advantageous for two reasons: a municipality or county council/region’s 1) Access to adequate basic data. Borrowing economic and financial position, as: can, in many cases, be separated from other • An increasing share of local government types of debt that are not of a financial authorities’ operations are being conducted nature, and details of the Group’s invest- in company form. For example, an increa- ment volume can be obtained at the munici- sing number of local government authorities pal and county council level; have transferred their service and operations 2) Details, primarily of investments, are premises to a subsidiary. published faster than statistics from Statistics Sweden (SCB). Questions on the contents of this report may be addressed to: Mattias Bokenblom Head of Research, Kommuninvest Tel.: +46 (0)10-470 88 03 E-mail: [email protected] 2 Kommuninvest Local government debt 2016 FOREWORD Extensive investment needs require sustainable financing The Swedish local government sector faces a Increased debt in the local government sector new period of large-scale and wide-ranging highlights an aspect that Kommuninvest welfare investment. As investment volumes has observed for quite some time – the short have increased, so have borrowing needs. period for which capital is tied up in bor- Although investment volumes did not rowing. Borrowers’ preferences for short-term increase more than marginally in 2015 com- financing entail nearly SEK 250 billion having pared with the preceding year, investment to be refinanced each year. Unless this beha- needs have increased in both the short and viour changes, annual borrowing needs will medium term since last year’s debt report. In increase in pace with borrowing debt. Under terms of volume, investment growth among normal circumstances, this is not necessarily the country’s local government authorities is a problem, but in the event of a new crisis in driven largely by developments in and around the financial markets, liquidity can deteriorate Sweden’s metropolitan municipalities and rapidly and refinancing costs can soar. With provincial capitals. increased debt, it is increasingly important, In 2015, local government debt increased from a risk perspective, for additional local by nearly SEK 50 billion, the largest increase government players to extend the period for ever in nominal terms. Although the rate of which capital is tied up. increase appears to have slowed in 2016, the need to finance investment in the municipal sector with external funds will remain sub- stantial over the coming years. Tomas Werngren Mattias Bokenblom President, Kommuninvest Research Manager, Kommuninvest Kommuninvest Local government debt 2016 3 INVESTMENTS High rate of investment but little change in 2015 The municipalities and county councils/regi- the investments by the municipal groups were Increased total ons bear a comprehensive welfare assignment, made by the municipalities, and investments assets with responsibilities including preschools, of SEK 56.4 billion were made by municipal Between the years 2010 and 2015, the schools, social services, health care and public companies. The corresponding figures for the local government transport (see Table 1). Internationally, the county council/regional groups were SEK 18.8 sector’s total invest- ment amounted to Swedish local government sector is distinguis- billion under the auspices of the county coun- EUR 696 billion. During hed by its large corporate spheres and the cils and SEK 9.4 billion through companies the same period, bor- rowing debt increased major asset values that exist within these com- owned by the county councils. Accordingly, by SEK 173 billion while panies, see Figure 1. This means that, in addi- the distribution of the sector’s investments, see the book value of the tangible fixed assets tion to their statutory tasks, local government Figure 3 was largely identical to that in 2014. increased by SEK 214 authorities are also involved in supplying hou- Of the local government groups’ invest- billion. The total book value of the fixed sing, properties and energy, while the county ments, 56 percent were attributable to housing assets was SEK 1,137 councils/regions in addition to dental, health and properties. Housing investment includes billion at the end of 2015. and medical care, and public transport, are both renovation and long-term maintenance also active in culture, education and tourism. of existing stocks, as well as new construc- Figure 1: Borrowing In 2015, combined gross investment by the tion, while property investments comprise ser- debt and tangible Swedish local government sector in tangible vice and operations premises, such as homes fixed assets, 2010 fixed assets amounted to SEK 133.0 billion1, for the elderly, preschools and schools, and and 2015 which is a marginal increase of SEK 0.5 billion sports and bathing facilities. Some municipa- SEK bn compared with the preceding year. This is the lities are also involved in purely commercial lowest increase for the sector as a whole since properties, such as parking garages and indu- Kommuninvest began reviewing investments strial facilities. Infrastructure investments in in tangible fixed assets in 2007. streets, roads, parks, water treatment plants Of the sector’s total investments, the muni- and water and sewage pipelines, ports and air- cipal groups accounted for SEK 104.8 billion ports accounted for 25 percent of total invest- and the county council/regional groups for ments, while investments in district heating SEK 28.2 billion. In turn, SEK 48.4 billion of and electricity in the energy companies owned Borrowing Table 1: The tasks of the municipalities’ and county councils Assets Source: Statistics Sweden and Municipalities County councils Kommuninvest Compulsory Voluntary Shared Compulsory Voluntary Social operations Leisure and culture Public transport Health and care Culture Schooling Technical services Dental care3 Education Planning and building Energy supply Tourism issues Environmental health Streets and roads protection Sanitation and Housing waste construction Water/sewerage Business development Emergency services Library operations2 Crisis contingency planning Housing provision Source: “The creditworthiness of the Swedish local government sector,” published by Kommuninvest and SALAR 1) The actual value is higher since a number of major municipal groups choose to disclose only net investments, that is, adjusted for divestments during the year. 2) A public library in each municipality. 3) Dental care for children and adolescents up to 20 years of age. 4 Kommuninvest Local government debt 2016 INVESTMENTS by local government authorities accounted for 4 11 percent. Hidden under the item “Others” Figure 2: Investment volume, 2007–2015 Figure 3: Distribution of local government are, among other things, equipment and SEK bn sector investments in investments in municipal vehicle fleets, see 2015 Figure 4. Over time, the distribution between diffe- rent areas of investment has not changed more than marginally. However, low energy prices have resulted in decreased investment in local government energy companies. Changes in investment volumes among county councils and regions are driven lar- Municipal companies gely by the development in Stockholm County Municipalities 42% Council (SCC). Through the construction of Municipal companies Municipalities 36% County councils and their companies County councils/ the Nya Karolinska Hospital, an extensive regions 14% Source: Kommuninvest upgrading programme for other hospital units The county councils/ and investment in the county’s metro system, regions’ companies 7% SCC accounted for half of the county councils Source: Kommuninvest and regions’ total investment volume in 2015. However, several other county councils and regions have either already begun, or plan, to renovate existing hospital buildings or to construct