“Next year will be even more difficult than this for our financial situation,” says Luxembourg city mayor Paul Helminger. Speaking at a City Breakfast meeting with journalists on 15 July, the mayor is keen to point out that the city council has been examining its financial situation with a fine toothcomb for the past five months. “We have to be prepared for September,” he says. The city cannot submit a deficit budget and will therefore have to drastically cut its operational expenditure if forecasts of a severe drop in revenues from local commercial tax and VAT – which together make up two-thirds of the city’s income – are accurate.

Fiscal shortfall

Based on reliable analysis of the situation at the end of May this year’s budget may just escape falling into deficit, but François Bausch, the deputy mayor in charge of finances, estimates that the shortfall in 2010 could be between 42 and 45 million euros. Indeed, Bausch reveals that the city suffered a 60% fall in commercial tax revenues in 2008 – and that was not as bad as it could have been as many financial institutions paid advances on their tax bills based on their income from 2007. Income from commercial tax has recovered somewhat in 2009, but Bausch says that even in a best case scenario it will not return to 2007 levels until at least 2013.

Personnel costs make up around half of the city’s 550 million-euro operating budget, but making substantial cuts in this area will be difficult, if not impossible, in the short-term says Helminger.“Each department is being asked to make cuts,” says Bausch. “It will be a painful exercise, but we will make decisions on what savings can be made, and where, by the end of July.” That means cutting current expenditure on services of 226 million euros by at least 42 million. The deputy mayor says that the city can survive one or two years on its substantial reserves, and that if it submits a balanced operating budget the city could even borrow money. Meanwhile, Helminger emphasises that the city’s key priorities – transport, housing and children’s services – will be the least affected.

As for the extraordinary budget, Helminger says that new infrastructure projects that have already been ratified by the council will go ahead, but that those which have only been passed by preliminary vote will be re-examined and re-prioritised. “Which does not mean we will not eventually carry them out,” the mayor says. However, no new projects are being set into motion until a full recovery is underway.