Valka begins financial stabilisation as cooperation with Valga ends

Valka, a Latvian border town, is insolvent, and its municipal council has agreed to launch a financial stabilisation process. Cooperation with neighbouring Valga Parish in Estonia has ended, according to Estonian public broadcaster ERR.

Why the money is short

In Latvia, the size of a local budget depends on population. Valka's municipal register lists 8,000 residents, but about a thousand more people have over the years registered in Valga Parish, because benefits in Estonia are higher and the healthcare system is better. Another roughly 500 people commute to work in Estonia every day, and their taxes do not reach Valka.

Vents Armands Krauklis, head of the Valka municipality, told the programme Aktuaalne kaamera that the town must still ensure child rights protection, run the municipal police and prevent cyberattacks. All of this is expensive, leaving less and less money for sport, culture and community events.

State Audit Office criticism

The State Audit Office of Latvia criticises Valka for spending that had no guaranteed budget revenue behind it, and for serious disorder in heating and water supply. For many years the municipality effectively acted as a utility service through which residents paid for utilities. Many did not pay, debts were not recovered, and tariffs, according to the Audit Office's calculations, did not match actual costs. At the end of last year, residents' debt to the municipality exceeded one million euros.

Ilze Bādere, a council member of the State Audit Office, said the causes of the financial difficulties were weak financial management and insufficient internal control. Budgets assumed more revenue than could realistically be collected, and commitments on European Union projects were taken on too optimistically. Currently, unpaid bills total 400,000 euros.

What happens next

The two countries are linked by the Pudrumäe recreation area. Such investments will stop, at least for a while, because a Finance Ministry commission intends to ensure that Valka first performs the tasks set out in the Constitution and other laws. No one can say how long stabilisation will last, and if the budget-formation model does not change, the solution will only be temporary.

Mart Kase, the elder of Valga Parish, said Valka has no debt directly to Valga. The parish administration, together with the Vidzeme Planning Region, has begun drafting a joint Valga–Valka strategy, an important document for obtaining EU funds. He did not rule out that Valka may merge with a somewhat wealthier municipality in the region, such as Smiltene or Valmiera.