Mayor’s budget proposal for 2024: Growth continues, investments focus on schools and day care centres

Global conflicts and unrest and rising inflation have increased uncertainty in the operating environment. The rise in interest rates has weakened the purchasing power of households as well as business investments. The effects can be seen, for example, as a wave of bankruptcies in the construction sector, as a reduction in corporation tax revenues and as an increase in the unemployment rate. The other effects are delayed, and this will automatically be reflected in cities’ financing basis and services.

The health, social and rescue services reform has affected cities’ financing model, and the change has been particularly significant for Espoo. As a result of the reform, Espoo’s tax funding was cut by approximately EUR 190 million more than what the costs of providing health and social services were. The annual loss in tax revenue is significant, even though the state partly compensated for the cut through a change limiter and transitional equalisation as part of central government transfers. The cut in Espoo’s tax funding is the largest transfer payment at the national level. At the same time, Espoo became dependent on central government transfers, as taxes based on residents’ employment and income level are replaced by central government transfers that do not take account of the actual costs related to growth and foreign-language speakers.

“The current financing model will weaken the growing city’s ability to finance and make investments. The next reform of the municipal financing system is already being launched, and it is important that it not further weaken the operating conditions of growing cities that create vitality. Furthermore, growing cities cannot cover the deficit of the rest of the public sector,” says Mayor Jukka Mäkelä.

The growing Espoo takes care of residents’ wellbeing

“Espoo’s growth story continues. Especially families are still moving to Espoo for work and competence development,” says Mayor Jukka Mäkelä.

The changing and uncertain operating environment will challenge the city’s finances, but the most important goals are still balancing the city’s finances, working towards achieving carbon neutrality, and ensuring successful integration and employment among immigrants.

At the beginning of 2023, the responsibility for health and social services transferred from the city to the Western Uusimaa Wellbeing Services County. The change will continue to affect the city over the coming years. One of the city’s tasks is still to make sure that residents are doing well, so Espoo is working actively to promote residents’ health and wellbeing.

“Our aim is to be permanently the most sustainable city in Europe and to develop our growing city economically, environmentally, socially and culturally,” Mäkelä says. “By actively involving residents in the development of services and by cooperating with partners, we can ensure that our services are effective and meet the needs of our residents.”

Espoo plays a major role as a driver of economic growth in Finland

In relative terms, Espoo is the fastest growing city in Finland. This year, the city’s population is expected to grow by 8,000 people. This is exceptional at the national level and indicative of Espoo’s appeal as a city. The birth rate in Finland is falling, but the number of children and young people in Espoo is expected to grow, also in the coming years. In recent years, Espoo has invested particularly heavily in the Schools in Shape programme and in the construction of new day care centres. High-quality early childhood education and language paths from early childhood education to basic and upper secondary education also draw international talents to Espoo.

“Our thriving international business, university and R&D environment attracts new companies and operators to our city. This increases the vitality and competitiveness of not only Espoo but the entire capital region and Finland,” says Mayor Mäkelä.

Large infrastructure and rail projects, such as the extension of the West Metro and the light rail line launched this year, also draw companies and investments. This is particularly evident in the development and appeal of Keilaniemi, Otaniemi and Leppävaara.

Espoo is committed to achieving the UN’s Sustainable Development Goals (SDGs) as a forerunner by 2025. This year, Espoo also became the first Finnish city to be selected as a lead partner of the EU-funded URBACT programme. The network focuses on promoting strategic and comprehensive sustainability in cities based on the UN’s Sustainable Development Goals. The green transition takes place in cities, and networking offers Espoo opportunities to strengthen its competitiveness and sustainable growth.

Investments focus on schools and day care centres

The budget’s tax revenue is based on the forecast of economic growth outlined in the economic survey published by the Ministry of Finance this autumn and on the estimates of the development of tax revenue presented in the tax forecast framework maintained by the Association of Finnish Local and Regional Authorities. The new financing model and the real estate tax rates decided by the City Council have been taken into account in the tax revenue estimates. Espoo’s new local income tax rate in 2024 is 5.3%.

The net costs of service provision, i.e. the operating margin deficit, will decrease by EUR 79 million from its 2023 level. The needs related to the provision of services have been comprehensively taken into account in the increase of costs. In 2024, the city’s annual contribution margin is estimated to drop to EUR 269 million and the financial result for the accounting period will decrease by EUR 110 million from its 2023 level, ending up at EUR 66 million. The city’s annual contribution margin and the financial result for the accounting period are expected to rise slightly in the following years if the overall economic growth picks up steam.

The entire Corporate Group of Espoo will invest some EUR 500 million in 2024. Between 2024 and 2033, it will invest around EUR 3.8 billion, an average of EUR 376 million per year. The level of investment will remain high in the next few years. The city’s investment programme will have a total budget of EUR 1.6 billion. A large part of the investments will be allocated to the construction and renovation of schools and day care centres in accordance with the Schools in Shape programme. New targets include the expansion of the Espoo Cultural Centre and the construction of a football stadium in the Tapiola sports park. These will be funded by revenues related to land use. The development of Espoon keskus also continues.

The amount of the city’s loan will increase in 2024, but in the financial plan period the total loan amount will decrease slightly.
“It is important to examine the development of the loan portfolio in the longer term, as is the case with the investment programme. Economic calculations show that the adequacy of the annual contribution margin in relation to future investments poses significant risks in the future,” the Mayor says.

In the midst of changes and uncertainty, Espoo has invested in vitality and cost-effective provision of high-quality services. It is important that this work continues during the forthcoming financial plan period.

The budget proposal is available on the City of Espoo’s website (in Finnish).
The Espoo City Council will decide on the budget for 2024 on 7 December 2023.