Dorita Yiannakou
The dispute between the government and the Union of Municipalities over state funding for local authorities shows no sign of ending. Despite the Interior Ministry’s announcement that the government has submitted its final proposal, the Union of Municipalities insists that the proposed measures do not address the funding problem as a whole.
Responding to claims by Union of Municipalities President Andreas Vyras that municipalities are being financially squeezed, Interior Minister Constantinos Ioannou stressed that the €117 million state grant was agreed and approved in 2022. He also rejected claims that municipalities were later burdened with responsibility for 63 communities. As he noted, the inclusion of the communities, the state grant, and the local government reform were all part of the same legislation.
At the same time, the government says it has provided municipalities with significant additional support, including €12 million to cover revenue lost when licensing responsibilities were transferred to the District Local Government Organisations and €15 million for the maintenance of primary roads. According to the government, both amounts have already been paid in 2026. It also notes that the state grant will increase further when the adjustment formula is introduced in 2027.
For his part, Vyras told “K” that the additional funds do not solve the main problem. Municipalities are not seeking piecemeal assistance, he said, but a permanent and stable mechanism ensuring that the state grant is adjusted in line with increases in government spending, inflation, and economic growth so that it retains its real value.
According to the Union of Municipalities, lost revenue and rising operating costs have significantly limited the financial capacity of local authorities. It argues that the funding for roads and licensing covers specific obligations and cannot be considered additional state assistance that meets the municipalities’ overall needs.
Although further talks between the two sides are expected, the Interior Ministry has made clear that the proposal currently on the table represents the government’s final position. This leaves the gap between the government and the Union of Municipalities over local government funding unresolved.
The sticking points
The main issue raised by municipalities is the need for the state grant to be adjusted permanently and fairly so that it keeps pace with increases in government spending and inflation, Vyras told “K.”
He said local authorities have lost a significant portion of the grant’s purchasing power in recent years because of rising operating costs, wages, and service expenses. He explained that municipalities are not necessarily demanding a specific percentage but want a mechanism ensuring that funding increases alongside their actual needs.
“Across Europe, there is either a set percentage or an adjustment mechanism. We accept that ours may be lower, but at the very least, the increase must keep pace with rising costs,” he said.
Commenting on the additional amounts cited by the government, including the €12 million and €15 million for roads, he argued that they do not offer a complete solution. According to Vyras, the €12 million essentially compensates municipalities for revenue lost after responsibilities were transferred to the District Local Government Organisations, while the €15 million covers road maintenance work that was already the responsibility of municipalities.
Vyras also referred to past levels of state funding, noting that in earlier periods, such as 2010, the amounts were higher than they are today, even though government revenue was lower at the time because of the financial crisis.
He pointed out that the agreement setting the grant at €117 million was reached before the current government took office and emerged through the local government reform process.
More specifically, he said a different approach had initially been considered, with municipalities expecting revenue from other sources, such as vehicle registration fees. However, shortly before Parliament approved the reform, it was decided that a fixed state grant would be introduced.
He argued that additional mergers and communities were added during the process, changing the circumstances and creating new financial needs for municipalities.
He also made clear that municipalities cannot consider a piecemeal proposal involving only a few million euros satisfactory. They are demanding that the issue be addressed in full, arguing that meaningful progress in implementing the reform cannot be made without a comprehensive agreement on local government funding.
The president of the Union of Municipalities added that another meeting with the responsible minister would be requested in the coming days, with the aim of finding an overall solution.
Interior Ministry: The amounts will not change
The Interior Ministry has made clear that the government’s final proposal has been submitted to the Union of Municipalities. It said the proposal was drawn up following consultation and coordination between the Interior and Finance ministries.
According to the ministry, the announced amounts will remain unchanged. It added that the increased state grant, through the introduction of the new adjustment formula, will take effect in 2027.
The ministry also clarified that the additional funds covering revenue lost when responsibility for issuing permits was transferred to the District Local Government Organisations, as well as the funding for primary road maintenance, have already been provided this year.
Ioannou rejected the Union of Municipalities’ claims that local authorities are being financially squeezed, noting that the €117 million state grant was agreed in 2022 between the government at the time and the union.
He said the government had provided municipalities with further support, including €12 million to cover lost licensing revenue, €15 million for road maintenance, and additional funding for communities incorporated into municipalities.
He also said the adjustment formula for the state grant will be introduced in 2027, increasing the total to €156 million. He stressed that the government has corrected problems created by the reform and provided additional resources to support local authorities.
