Reykjanesbær municipality in Southwest Iceland, including Keflavík, is in debt by more than ISK 40 billion (USD 327 million, EUR 260 million), as revealed when a report by KPMG on the community’s finances was presented at a public meeting yesterday evening, which makes it the country’s most heavily-indebted municipality.
The new law on municipalities, which took effect on January 1, 2012, states that no municipality can be indebted by more than 150 percent of its revenue. However, in 2013, Reykjanesbær was indebted by 248 percent of its revenue, ruv.is reports.
“We have of course invested immensely in the past years in all sorts of constructions, [in industrial buildings] in Helguvík and elsewhere, … trusting that it would result in increased revenue. That has been delayed and thus the debts were created,” Mayor of Reykjanesbær Kjartan Már Kjartansson explained.
A Norðurál Century Aluminum smelter was first planned in Helguvík in 2005. Construction has begun but due to uncertainty in energy availability and other issues, the project has taken longer than expected.
Other industrial projects in Helguvík include a United Silicon plant, for which ground was broken in August 2014, visir.is reports.
According to the law, municipalities have ten years to pay their debts and reach the 150 percent benchmark. However, KPMG estimates that given the current situation, Reykjanesbær will not be able to reach that benchmark in ten years but be down to 189 percent in 2021.
KPMG expects the municipality’s debt situation to worsen in the coming years, with the total debt reaching ISK 43 billion in 2021. Already next year, Reykjanesbær will likely face problems with making payments, lacking ISK 1.3 billion to meet its obligations.
To cope with the situation, KPMG recommends rationalizing in the municipality’s operations, achieving increased productivity of ISK 900 million by higher income and lower tariffs, modifying investments, reorganizing loans and considering selling assets.
“We are looking at a number of difficult actions which must be carried out … and I am convinced that we will reach the goal we have set for ourselves,” Kjartan stated.
The goal is to achieve an initial ISK 500 million rationalization in the operations of Reykjanesbær, which is 5 percent of its operations. Kjartan believes this can be managed without compromising basic services, such as healthcare and education.
Although the situation has improved in recent years, Reykjanesbær still suffers the highest unemployment rate in Iceland, at 5.7 percent in June 2014, whereas the overall jobless rate in Iceland was 3.6 percent, up to 4 percent in the third quarter of 2014.
Many workers in the community lost their jobs when the U.S. military closed the Naval Air Station in Keflavík in 2008.