Saturday, March 19, 2011

Spend now–pay later

You might wonder why Bigastro is so much in debt that it cannot pay for electricity and other essential services.

Like many towns in this region and in some other parts of Spain, Bigastro grew exponentially during the boom years of construction.  With the growth came wealth the likes of which had not been experienced before. Bigastro used that new found wealth to greatly improve services for the people of the town. The council also used the money to  build new facilities that before the boom years could only have been dreamed of. Life was good.

However, the rapid growth of the town would have posed a problem because there would have been a time gap between the demand for extra services, the cost of building new facilities and the  income coming in from the new residents.

New residents do not pay local taxes for at least a couple of years and neither would the town hall have received support from the government for the expanding population. The answer to that problem in Bigastro was to sell of municipal land to pay for the extra services required but of course you can only sell land off once. When all the land is sold, there is nothing left in reserve. Balancing the town’s budget by disposing of assets was a short term fix that only worked for one year or so.

When the boom years ended, the money dried up and Bigastro, like other towns, ran up mounting debts which it can no longer meet.

Applying foresight, the council at that time should have realised that the boom years could not last and  that growth at those levels was  not sustainable. They should have planned for that and been more prudent in their spending, providing only what was affordable without resorting to using the extra income that was coming in from construction. In my opinion, the spend now and pay later model that Bigastro adopted in those boom years caused the grave problems that the town now faces.

Bigastro is not alone in facing these issues, the average debt for councils in this region is double the national average. The amount per inhabitant in the province rose from 435.7 Euros in 2008 to 530.7 Euros in 2009. By the end of 2009, Alicante town halls owed 998 million Euros to the banks. I don’t know what the figures for Bigastro are but I would guess that they are at the high end of the scale.

The only possible solution to all this is to cut the services back to a level which the town can afford but of course with an election in May, councils like Bigastro are unlikely to do much in that direction – being prudent  does not win you votes.   Sadly, there will soon come a time when they have no choice.

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