Friday, July 1

How to spend 13,000 million euros?

In the coming months, our country will begin to access, through the European Recovery Instrument, a total of 140,000 million euros until the year 2026. This raises the debate about which items politicians will prioritize with the budget increase and whether we can expect differences between parties. This is a relevant question: knowing how declared preferences would translate into specific spending or investment programs is not only an interesting empirical exercise, but can also be informative from an applied perspective.

In fact, a few months ago, in this Blog, Aina Gallego and Alba Huidobro presented the results of a survey carried out with more than 1,000 mayors and mayors on which budget items they would prioritize, within their powers, if they had unexpected money. In addition, they wondered if there were substantial differences in spending priorities between politicians of different ideologies. In their article, they noted the following: “[A]Although we cannot know what would happen if different parties ruled, we can analyze whether politicians from the left and the right have different preferences about what to spend extra money on. “ The authors concluded that the areas that were prioritized the most in general were social protection and education, as well as that there were different preferences between mayors from the right and the left.

To analyze this question, it happens that, very conveniently, we have a previous experience (actually, two, very close in time) of large and more or less unforeseen transfers to local entities, which allow us to verify, on the one hand, what spending priorities were allocated and, on the other hand, if there were differences between politicians of different ideologies: it is the State Fund for Local Investment (FEIL) and State Fund for Employment and Local Sustainability (FEESL).

The FEIL and FEESL were state funds destined for municipal investment (mostly in works) that, for the purposes of this analysis, have several relevant characteristics. On the one hand, they were approved by Royal Decree-Law in response to the financial crisis (the first of them a few months after the bankruptcy of Lehman Brothers), which gives them a character of shock very obvious unforeseen; on the other hand, its creation regulations specify that the works that are the object of the contracts should be newly planned and immediately executed, which reinforces their discretionary nature. In addition, the financing of each of the projects covered the real amount of execution, not assuming an extraordinary cost for the municipalities. Finally, the distribution criterion was unique and transparent (in proportion to the population figures), which would avoid potential effects of party alignment on the allocation of intergovernmental transfers. Given these characteristics, the experience of these state funds can be complementary to the survey data to analyze how the money from European funds can be used, providing a more favorable perspective, since it is data of real and effective execution, other than (stated) answers in a hypothetical context.

However, they also present some aspects that prevent the analysis from being exactly parallel to that carried out by the authors with the data from their survey. The first fund, of 8,000 million euros, was intended “to finance urgent actions at the municipal level in matters of investments especially generating employment”, such as adaptation, rehabilitation or improvement of urban public spaces or environments, facilities and basic service infrastructures, and construction, adaptation, rehabilitation or improvement of buildings and equipment. Therefore, within the framework of the analysis carried out by Gallego and Huidobro, the FEIL works are deeply biased towards the category of “Infrastructure and transport”. The FEESL, on the other hand, was destined “to finance the execution by the City Councils of investments that generate employment and actions of a social nature, of municipal competence, that contribute to economic, social and environmental sustainability”, in a broader scope that included from the promotion of economic activity, entrepreneurial initiative and innovation to saving and energy efficiency, through the construction, adaptation, rehabilitation or improvement of social, health, cultural and sports service centers. Therefore, despite having the same purpose as the FEIL (works of municipal competence), its destiny in broad terms of public policies was more diverse. In addition, the FEESL contemplated the possibility of financing actions of social interest: that is, “current expenses of action programs of a social nature incurred by the municipalities in the exercise of their powers” (education, dependency and social services and promotion and reintegration social), up to the maximum amount of 20 per cent of the total amount, which further broadens the scope of the categories.

The database from which the projects have been extracted allows obtaining abundant information (name, municipality and province, amount and typology, of between 12 for the FEIL and 16 for the FEESL, grouped in this case in three main lines: economic sustainability , environmental and social) on the 30,579 projects of the FEIL and the 25,223 of the FEESL. In addition, it contains information on the 5,200 actions of social interest of FEESL, although it does not categorize them exhaustively, so they have been included in an aggregate way in a typology called “actions of social interest”.

In short, while, from a comparative point of view, the categories are different from those selected by the authors, the FEESL allows a satisfactory analysis of both the different spending and investment priorities carried out by mayors after receiving a unforeseen (and relatively large) amount of money such as differences in priorities between politicians of different ideologies. To study both questions, all the projects of those municipalities with more than 2,000 inhabitants in 2008 have been selected, grouping them by categories and calculating the percentages of expenditure on the total volume, using the average of the set of municipalities (and not the proportion of spending in all municipalities) to obtain the distribution of spending by type of investment.

In graph 1 this distribution can be seen: the highest investment was in construction, adaptation and improvement of social, health, cultural or sports service centers (35%), followed by efficiency in the management of water resources and other networks water supply (14%) and energy saving and efficiency (13%). Spending on social interest actions was, on average, 10%, far from the maximum 20% allowed by the regulations, but relatively important considering that it was included as an additional action in the FEESL with respect to the FEIL and was also limited in its amount. The rest of the categories were much less important, although investments in construction, adaptation and improvement of educational centers (6%) and in urban sustainability, less polluting transport and road safety (4%) stand out.

Graph 1. Percentage of expenditure by type of investment (FEESL)

On the other hand, using data from the Mayors and Councilors Database, the ideology of mayors and mayors has been approximated, identifying those of the Popular Party as right-wing and those of the PSOE as left-wing, to calculate the average percentages of spending by typology in municipalities with mayors of different ideology, without considering the potential relationship between ideology and spending priorities.

Figure 2 shows the differences, or rather the absence of them, except for investments in efficiency in water resources management and other water supply networks. Similar results are obtained in the case of FEIL (results not shown), with few differences except for investment in cultural, educational or sports facilities and buildings, where the right invests about five percentage points more on average.

Graph 1. Percentage of expenditure by type of investment (FEESL), by ideology.

What could be due to this absence of substantial differences in spending priorities between politicians of different ideologies? In the first place, it may be conditioned by the specific regulatory context that regulated the Funds, focused on investments in works. On the other hand, there may be influence of the economic context: the survey was carried out in times of growth, when one can have more room to implement their favorite policy, while the Funds were created and executed in a context of economic crisis, which perhaps it made the maintenance of employment or the rapid implementation of investments a priority beyond political preferences.

It could also happen that the types of investment are too general, especially in the case of FEIL, where two of the three main categories (rehabilitation and improvement of public spaces and promotion of mobility and road safety, which account for more than 50% of the investment media) have projects with highly overlapping objects and where the remainder (cultural, educational or sports facilities and buildings) is very broad and encompasses three of the priorities considered by Gallego and Huidobro. A more detailed analysis to delve into these differences would require being able to categorize the projects beyond the standard typology, which has been used, for example, by the government in their analysis or by the Court of Accounts.

Finally, and in any case, it could simply be the case that the declared preferences are not always aligned with the decisions that end up being implemented.