Effectiveness of the assessment procedure in balancing local government finances and safeguarding services

The financial key figures of municipalities involved in the assessment procedure have improved after the procedure, and the municipalities have mainly been satisfied with the procedure. However, communication about the decisions related to the assessment procedure should more transparent, and basic public services should be taken into consideration more systematically during the procedure.

The purpose of the assessment procedure is to support local government finances and to safeguard the provision of statutory services even for the residents of municipalities in a particularly difficult financial situation. During the assessment procedure, the municipality and the central government should together examine the municipality’s capacity to provide the statutory services for its residents and take measures to safeguard the conditions for service provision.

Between 2007 and 2023, the criteria for the assessment procedure were fulfilled in 54 municipalities, and the procedure was initiated in 41 municipalities. In the assessment procedure, a proposal for a plan to balance the finances of the municipality is drawn up and submitted to the municipal council for approval. In 21 municipalities, a special investigation referred to in the Act on Local Government Structures was conducted to redetermine the municipal boundaries, and 12 of them ended up in redetermining the municipal boundaries.

The aim of the audit was to examine whether the assessment procedure of municipalities had identified and addressed problems in local government finances and safeguarded the availability of the statutory basic public services in the municipalities. Based on the audit, the assessment procedure is an effective way to examine and intervene in the financial situation of an individual municipality if the municipality has no credible economic capacity to cope with its expenditure or accumulated deficits.

According to the audit findings, the financial key figures of municipalities have improved after the assessment procedure, and the municipalities have been largely satisfied with the work of the assessment team. However, it was possible to show a causal link between the procedure and the improvement only in the case of the development of annual profit. The assessment procedure of municipalities is, nevertheless, intended as a last resort measure directed at only a small number of municipalities. It is thus not intended to serve as a steering instrument that would be more broadly directed at the local government finances or structure or at the basic public services.

It was also found in the audit that the services perspective is not taken into consideration systematically at the different stages of the assessment procedure. The status of statutory services in the municipalities selected for the assessment procedure is not assessed before the assessment procedure is initiated or after it has finished. Nor is there sufficiently comprehensive information available currently to support such assessment.

The National Audit Office recommends that the Ministry of Finance should develop the information base available on services and consider and report on the services situation in the municipalities more systematically and comprehensively during the work of the assessment team.

Transparent and public communication on the grounds for decisions related to the assessment procedure of municipalities would increase confidence in the procedure and its consistent use in different municipalities. The information presented on the assessment procedure in the Programme for Local Government Finances in the autumn should be harmonised, for example, by disclosing the criteria that have been fulfilled in each municipality during the year in question and by presenting detailed justifications for initiating or not initiating the procedure.

The National Audit Office recommends that the Ministry of Finance should report consistently and with justifications, for example in the Programme for Local Government Finances, on the fulfilment of the criteria of the assessment procedure and on the initiation or non-initiation of the procedure.