Icelandic Municipality Loses Financial Independence Skip to content

Icelandic Municipality Loses Financial Independence

Minister of Transport Kristján L. Möller decided yesterday to follow the advice of the committee supervising the finances of municipalities and appoint a three-person board to reorganize the finances of Álftanes, a neighboring community of Reykjavík, which has gone into insolvency.

Álftanes. Photo by Páll Stefánsson.

“I believe this is the way that we have to go to turn this development around,” Möller said during a press conference, Morgunbladid reports.

The town council of Álftanes has submitted proposals on savings measures but the board has yet to work on its action plan. “Many different measures must be undertaken,” the minister said.

The municipality owes ISK 7 billion (USD 54 million, EUR 40 million) but is only capable of paying ISK 2-2.5 billion (USD 16-19 million, EUR 11-14 million) of that amount.

One of the reasons for this heavy debt load is a new and technologically advanced swimming pool, which opened in Álftanes last year.

It has not been revealed whether the state will give the municipality additional financial support, whether debts will be written off or whether the inhabitants of Álftanes will be subject to extensive cutbacks and additional taxes.

“The high debts are the largest problem and it has to be fixed,” said Ólafur Nilsson, chairman of the committee supervising the finances of municipalities. He said selling Álftanes’s assets is a possibility; this measure has been undertaken before to solve the financial difficulties of municipalities.

Mayor of Álftanes Pálmi Thór Másson said the minister’s decision was not surprising. “It was clear that the municipality couldn’t work its way out of its financial problems without outside help.”

The municipality has discussed a merger with Gardabaer, a neighboring municipality, and Másson said the latest developments will not affect the merger talks. “We just have to look at what is in the best interest of the inhabitants.”

Mayor of Gardabaer Gunnar Einarsson confirmed that discussions have taken place and that Álftanes’s debt situation and merger ideas have been mentioned. Now further talks will await the board’s proposals for financial reorganization of Álftanes.

It has only happened once before that an Icelandic municipality has lost financial control to a government-appointed board.

In 1998 a board was appointed to reorganize the finances of Hofsós in north Iceland. Its inhabitants then decided to merge with two other municipalities.

Click here to read more about Álftanes’s troubles.

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