**Government Denies Claims of Cost Shifting in Local Government Reform**
The Interior Ministry of Cyprus has firmly rebutted allegations made by the Union of Municipalities, asserting that the government is not shifting the financial burden of local government reform onto residents. The ministry emphasized that state funding for municipalities has more than doubled since the reform was initiated.
In a statement released on Saturday, the ministry addressed the union's concerns regarding the proposed mechanism for adjusting the annual state grant. The Union of Municipalities has expressed dissatisfaction with the government's plans, claiming that they would result in inadequate funding for local authorities and ultimately place the financial responsibility on local taxpayers.
The Interior Ministry countered these claims, stating that the allegations "do not correspond to the actual facts." It highlighted that the government has significantly increased financial support for local authorities and has absorbed a substantial portion of the costs associated with implementing the local government reform.
According to the ministry, the annual state grant of €117 million was established under the Municipalities Law of 2022 and was incorporated into legislation during parliamentary discussions on the reform, with the agreement of the Union of Municipalities. The ministry acknowledged the need for the grant to be adjusted over time to reflect changing economic conditions, including inflation.
To facilitate this adjustment, the Interior Ministry, in collaboration with the Finance Ministry and following consultations with the Union of Municipalities, has developed what it describes as an objective and predictable mechanism for revising the grant. This mechanism aims to ensure that funding keeps pace with economic conditions while remaining consistent with the country’s fiscal obligations.
In addition to the €117 million annual allocation, the government has approved an extra €15 million each year for the maintenance of primary road networks, as well as an additional €12 million annually to compensate municipalities for revenue losses resulting from changes to development licensing. The €15 million allocation was based on a study conducted by the Union of Municipalities, which initially estimated the cost at €3 million.
Under the government's proposal, the three grants would be consolidated into a single annual state grant totaling €144 million. This consolidation is intended to secure funding on a permanent basis and address requests from municipalities for a more stable financial framework. The proposed amount represents a 103.4 percent increase from the previous total annual state grant of €70.8 million.
The ministry also outlined that the proposed adjustment mechanism would link future increases to an objective fiscal indicator based on the state’s net primary expenditure. This approach is designed to ensure that government support aligns with economic conditions while maintaining fiscal responsibility. Based on this formula, the total state grant is projected to increase from €148 million in 2027 to €160 million by 2030.
The Interior Ministry argued that adjusting the grant every three years would provide municipalities with greater certainty in their budget planning and operational needs. "The government has demonstrated in practice that it supports both the local government reform and the financial sustainability of municipalities," the ministry stated, emphasizing the doubling of state funding, additional financial commitments, and ongoing investments in municipal development projects.
Despite the government's assurances, the Union of Municipalities remains skeptical. The union has voiced concerns that the proposed formula for adjusting the grant would leave municipalities underfunded, ultimately transferring the financial burden of the reform to local taxpayers.
As discussions continue, the tension between the government and the Union of Municipalities highlights the complexities involved in local government reform and the challenges of balancing fiscal responsibility with the need for adequate funding of municipal services. The outcome of these discussions will be closely monitored by both local authorities and residents, as the implications of the reform will significantly impact the financial landscape of municipalities across Cyprus.