Kraków on brink of bankruptcy

Kraków’s debts have reached crisis level, with the budget deficit expected to hit 220 million złoty by the end of the year, prompting concerns that the city could go bankrupt.

The permitted debt to income ratio for the city is 60 per cent, but Lesław Fijał, city treasurer, said it currently stood at 66 per cent. His report to councillors this week showed that the expected deficit of 60 million złoty would be almost four times higher this year. Councillors are now awaiting a presentation from Mr Fijał, and are considering how to avoid financial meltdown.

Andrzej Hawranek, chairman of the budget committee, told journalists: “Kraków was on a precipice – now it is tumbling… if [the deficit] does not fall by the end of the year, the city could have very serious problems, including receivership.”

Grzegorz Stawowy, leader of the PO party in the council, added: “The data is so shocking and came so suddenly, that we have to consider what to do with it.”

And Bogusław Kośmider, chairman of the council, said the city might even default on this year’s loan payments. He added: “At the end of the year, a dramatic loss of liquidity awaits.. It is not known whether Kraków will have the money to repay loans.”

Mr Fijał said the city’s huge education bill – amounting to about a third of budget and helped very little by national subsidies – had played a large part in the crisis. He added: “The education subsidy from the state budget did not even cover an increase in teachers’ salaries.” He also cited over-investment in major projects such as the city’s new football stadia, and income that cannot keep pace with expenditure.

Now councillors are looking for ways to cut that expenditure, while raising extra money. Mayor Jacek Majchrowski’s pet project, Kraków Festival Office, is in the firing line – but Mr Majchrowski said that cuts in the nationally famous festival programme in Kraków would be ‘a disaster’. Other ideas raised in the council this week included raising the price of tram and bus tickets and fees for nurseries. If the crisis is not resolved, the city could be banned from taking further loans – putting public sector salaries at risk.

If it turns out that the debt will be exceeded at the end of the year, we will have to deal with the violation of the Public Finance Act – says Miroslaw Legutko, of the Regional Accounting Chamber, said: “If it turns out that the [allowable level of] debt will be exceeded at the end of the year, we will have to deal with a violation of the Public Finance Act.”

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