Local Finance - Report 2/2016 | CDP

Local Finance - Report 2/2016

The Report on Local Finance n. August 2, 2016 deals with - in four separate contributions - economic forces and regulatory reforms that can help promote investment, while preserving balanced budgets.

In recent years, the crisis has put a strain on the socio-economic fabric of the country and the local governments have been called on to confront the challenge: to adopt counter-cyclical policies and encourage development, without resorting to new debt

Public capital and productivity

The years that followed the crisis led to a sharp decline in per capita GDP and productivity for the Italian economy, accompanied by a significant reduction in public capital formation between 2007 and 2015, with a loss of 0.6 percentage points of GDP . In the same period, investment by local governments have suffered a greater decline than that of the entire public sector, or 24%, compared with a relatively smaller increase in current expenditure, accounting for 7%.
From 2015, public investment has returned to growth, mainly thanks to the contribution of local authorities. The replacement of the Internal Stability Pact with the "balanced budget" and, therefore, the resetting of the balance-goal, together with the outflow of cash payments from the system of constraints, should have expansive consequences for the local finance and aid recovery accumulation of public capital. It remains an important path for public debt reduction.

State-controlled companies

The Consolidation Act regarding state-controlled companies, finally approved by the Italian Prime Minister’s Cabinet, is choice of innovative legislative policy. New legislation, analyzed in the CDP report, allows you to talk, not only about a simple reorganization of subject matter, of a true reform of corporate government investments.

This reform, however, represents the pre-condition to enable an effective organizational and functional restructuring of state-owned companies, with cost savings and efficiencies, which may contribute to the improvement of national and local public finance.

In order to encourage investment, it is important to push the effective rationalization of stake holdings, operating aggregations and openness to the private sector in the capital markets, especially with regard to local public utilities.

Public lighting

Investments in the public lighting sector are fundamental for the rationalization of public spending, creating better efficiency while making improvements in the area, including from a Smart City perspective.

The promotion of work related to infrastructure network and energy efficiency in public lighting should: I) further improve upon the positive experiences that in recent years has seen public utilities/multi-utilities as protagonists through their energy service companies (ESCOs)  carry out important operations; II) impact the ability for local public administrative bodies to finance productive investments.

Integrated waste cycle

Italy still disposes 34% of municipal waste in landfills, against a European average of 28%, while the country is in a good position in the European charts for the recycling of hazardous waste (75% against a 46% European average).

There are many critical issues hindering the efficient management of the area. Among these is an inefficient system of processing plants - insufficient in some areas, obsolete and sometimes oversized in others.

With the aim of facilitating necessary investments to improve infrastructure, it would be important to focus on, among other things, aggregation, equity interventions, incentives for the involvement of long-term investors and synergy with European resources.

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