Spain to Set Deadline for Companies Owned by Local Governments to Balance Books

Spain's central government plans a Dec. 31, 2013, deadline for companies owned by local governments to balance their books or face liquidation, a document seen by Dow Jones Newswires shows. It is part of a wider reform of town-level administration that may be approved Friday. It seeks to transfer municipal services to provincial governments. Those services are currently provided by towns, which have had a steep drop in revenue because of a collapse in property-related taxes amid a five-year real-estate slump. The plan comes as Madrid prepares a new batch of austerity and budget-cutting measures to be presented this month, before much of the administration shuts down for holidays during August. Spanish gross domestic product contracted 0.3% in the first quarter from the fourth quarter of last year. The government has recognized the nation is in recession and has said the downturn has likely intensified. An initial second-quarter GDP government estimate won't be available until July 30th. Data Friday showed Spanish industrial production fell on average by 6.1% on the year in calendar-adjusted terms in the first five months of the year, with lower production of capital equipment and durable goods as main drags on output. As the weakening economy hits government revenue, many town and village administrations have been left with large budget gaps to cover, as they are mandated by law to provide social services such as care for the elderly. The reform will make it easier for towns to transfer those services to provincial governments that have been shorn of responsibilities over the last three decades as power devolved to towns and regions. This may be controversial in highly decentralized Spain, especially as provincial-level governments are seen by many as a holdover of 19th-century politics, unneeded in an era when regional governments have been empowered to take over key functions such as health care and education services. Unlike regional administrations, provincial governments aren't elected directly but are controlled by the party that has the most town councilors in each of Spain's 50 provinces. The new reform targets towns and cities of less than 20,000 inhabitants, where Spain's central government plans to conduct a one-year evaluation of public services. If the evaluation is negative, those services will be transferred to provincial-level governments.

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