On April 27, the Financial Discipline Law, applicable to States and Municipalities, was published in the Official Gazette of the Federation, which, as already mentioned in a previous note, not only regulates the indebtedness of local governments, but also Also regulates budgetary aspects of local public finances, in a manner similar to the Federal Law on Budget and Accountability applicable at Federal level.
While we understand that local legislation on debt in most states, if not all, is rather lax, which allowed a significant increase in the public debts of states and municipalities, particularly as of 2009, When the Shares declined significantly as a result of the economic crisis, the criticism of this Law is that it does not have “Mirror” provisions applicable at the Federal level, applying the well-known popular saying “Let the Lord’s Will be done, but in My Godfather”……..
Certainly, the new Law contains provisions that citizens should applaud, as it introduces transparency and a new register of liabilities that will allow us to know the payment commitments acquired by our local governments, including debts acquired through the so-called Public Private Partnerships, which regularly Were not recorded as debt.
Another important aspect is to require the favorable vote of two-thirds of the local deputies for the approval of new debts, a new mechanism of timely alerts, and the possibility of obtaining the endorsement of the federal government to improve the credit rating of the State.
The new law also contains provisions of financial rationality that oblige local governments to allocate 50 per cent of these resources to the payment of public debt, which is certainly favorable.
Criticizable is that it limits States the possibility of acquiring more debt when their current level of indebtedness is high, although it is not yet defined how this level of indebtedness will be determined, since Regulation Of this Law, also puts limits to the amounts of debt that can be contracted, for example Nuevo Leon, could not accede to a single debt weight considering its current levels of debt, which almost equals one year of its free resources However, at the Federal level, this indicator is three years old (three times NL), and this law does not apply to it.
As we can see, there are areas of opportunity to improve this new Law, since it also contains provisions that must be amended, for example, defines Budget Balance to the difference between the income contained in the Revenue Act and the total approved Expenditures, (excluding amortizations Of the debt), however, within the revenue approved in the Income Law, the income from financing is already going, so it is always equal to the expenses, that is, there would never be a deficit.
The States must modify their local legal provisions to harmonize them with this new Law, which should be applicable from the following year.