Local government debt 2018 CONTENTS Foreword 3 In-depth section 1: Local government 4 Localsector governmenteconomy assets16 and liabilities Lycksele 18 Local government 5sectorKarlskoga investments 18 Top ten 9 Linköping investments 18 Local government 10 In-depth section 2: debt Top ten 13 Green funding– of local borrowing20 government investment Local government 14 In-depthsector section 3: funding Disposals of local 22 government assets Appendix 1: SALAR’s categorisation of23 municipalities About Kommuninvest’s report series In its report series Local Government Debt, • Local government sector companies Kommuninvest reviews development in the account for slightly more than half of the local government sector’s investments and sector’s investments but the bulk of the debt. The report is unique, since both invest- external debt. ment and debt are analysed from a group per- spective. This means that operations condu- The supporting data in this report are based cted in company format are included in the on details gathered directly from the muni- data on which the report is based. The group cipalities’ and the county councils/regions’ perspective is important in obtaining an annual reports. The account lags by a year, accurate overall picture of a municipality or with the 2018 issue presenting data for 2017. county council/region’s economic and finan- cial position, as: • An increasing share of local government authorities’ operations are being conducted in company form. For example, an increa- sing number of local government authorities have transferred their service and operatio- nal premises to subsidiaries in recent years. 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 2018 FOREWORD Smaller increase in local government sector debt than forecast by Kommuninvest In last year’s report, we could confirm a being seen benefits local government authori- strong local government sector economy. One ties by freeing up labour resources for urgent effect in 2016 was a higher level of self-finan- welfare investments, such as schools. cing and a lower need for loan financing than One question that arises is: “What future Kommuninvest had assessed. When we now capacity will Swedish local government autho- summarise the figures for 2017, we can see rities have to cope with the amortisations and that these were almost as good as those for the growing interest expenses brought by increa- preceding year. Despite investment exceeding sed loan-funded investment?” In our assess- SEK 160 billion, borrowing increased by only ment, this capacity is favourable, provided 4 percent. that the local government sector ensures its Our previous forecasts indicated a doubling earnings are sufficient to meet the higher ope- of local government sector borrowing in nomi- rating costs associated with increased invest- nal terms between 2015 and 2024. If earnings ment activity, besides interest and amortisa- for municipal groups remain at 2016 and 2017 tion. levels over the coming years, we will have to Naturally, these challenges are strengthe- reconsider our assessment as local government ned in a situation where the economy is wea- authorities would thus invest their own funds to kening and there is less growth in the tax base. a greater extent rather than borrowing. In addition to its detailed analysis of green The overheating experienced by the financing and disposals of assets, this report construction industry for a number of years also includes three case studies. These present has hampered the local government sector’s the assets of three municipal groups, reflecting opportunities for new construction, exten- significant surplus values ​​and considerable sions and renovations. The downturn now shareholders’ equity per inhabitant. Örebro, September 2018 Tomas Werngren Mattias Bokenblom President, Kommuninvest Research Manager, Kommuninvest Kommuninvest Local government debt 2018 3 LOCAL GOVERNMENT SECTOR ECONOMY Local government sector economy Growth in the Swedish economy remai- Over the next mandate period, the local Figure 1: Population ned strong in 2017. Gross domestic product government sector’s finances are expec- change in different increased by 2.1 percent and the number of ted to experience greater pressure, particu- age groups 2018 to 2025 people in employment increased by more than larly in core operations involving healthcare, % 100,000 individuals. Sweden’s municipalities schools and care. It is primarily demographic and county councils/regions achieved strong factors that represent the greatest challenge earnings at the group level, SEK 39.1 billion. (see Figure 1). The labour supply is increasing There are several explanations behind this more slowly than the population as a whole, positive development: while the Swedish economy is approaching its • The continued strong labour market resul- capacity ceiling and the shortage of appropria- ted in a high level of growth in the tax base, tely qualified labour is increasing. This means leading to tax revenue for the municipalities that the number of hours worked is expec- and county councils/regions increasing by ted to increase more slowly in the next few – – – – SEK 33 billion between 2016 and 2017. years, pushing down the rate of increase for Source: Statistics Sweden • Municipal companies performed well, the municipalities and county councils/regi- showing favourable earnings. ons’ tax revenues. However, the cost pressure • Income from land sales, development pro- in the municipalities and county councils will perties and housing remained high. remain high, since the number of younger and older people in the population is rising signi- ficantly faster than the working-age popula- tion. To meet citizens’ needs for additional welfare services, substantial new investment in fixed assets is therefore needed, as well as extensive recruitment of personnel, driving up operating expenses. 4 Kommuninvest Local government debt 2018 LOCAL GOVERNMENT SECTOR INVESTMENTS Local government sector investments Sweden The municipalities and county councils/regi- Figure 3: Municipal Figure 4: Municipal Distribution of ons bear a comprehensive welfare assignment, companies by companies’ sales by municipal com- sector sector panies and sales with responsibilities including preschools, In 2016, the municipal schools, social services, health care and public and county coun- cil-owned companies transport (see Figure 2). In addition, the muni- had combined net cipalities and county councils/regions own sales of approximately SEK 240 billion. The approximately 1,800 companies engaged in housing companies housing, property and energy supply, trans- represented 17 percent of the companies and port, culture, education and tourism. accounted for 24 per- The combination of continued exten- cent of total sales. The Energy companies, 20% Energy companies, 32% corresponding figures sive renovation needs for homes and proper- Housing companies, 17% Housing companies, 24% for the energy compa- ties built in the record years of 1965–75 and Property companies, 13% Property companies, 3% nies were 20 and 32 percent respectively. strong population growth, requiring additio- Other companies, 51% Other companies, 38% Property companies, nal operational premises and expanded infra- Source: Kommuninvest Source: Kommuninvest including those provi- ding commercial pre- structure, is driving up investment volumes in mises, as well as public the local government sector. In 2017, combi- 2 and operational pro- Figure 5: Investment volume, 2007–2017 perties, accounted for ned gross investment in tangible assets incre- SEK bn 13 percent of the com- ased by 14 percent to SEK 165.2 billion1. This panies and 3 percent of sales. Other companies was the largest increase over an individual operating in transport, year between 2007 and 2017. Since 2010, the care, culture, educa- tion, tourism and mar- annual investment volume has risen by more keting, waste disposal than SEK 65 billion, corresponding to an aver- and water supply represented half of the age annual growth rate of almost 8 percent. companies (51 percent) Of the sector's total investments, the munici- and 38 percent of sales. pal groups accounted for SEK 133.4 billion and the county council/regional groups for SEK 31.9 billion, an increase of 16 and 8 percent, respecti- vely. In turn, SEK 61.2 billion of the investments Municipalities by the municipal groups were made by the muni- Municipal companies cipalities, and investments of SEK 72.2 billion County councils and their companies were made by municipal companies. Source: Kommuninvest Figure 2: The tasks of the municipalities and county councils Municipalities County councils Compulsory Voluntary Shared Compulsory Voluntary Social operations Leisure and culture Public transport Health and care Culture Schooling Technical services Dental care4 Education Planning and building issues Energy supply Tourism 1) The actual value is higher since a number of major municipal Environmental health protection Business development groups choose to disclose only Sanitation and Housing net investments, that is, adju- sted for divestments during waste construction the year and any investment Water/sewerage grants. Emergency services 2) Due to changes in amortisa- tion rules, the results for Library operations3 2014–2017 are not entirely comparable with